Assume a firm that has no debt and its 20 million shares are currently trading for $16 per share. Based on the prospect for a new product the management believes that the true value of the firm is $20 per share. Management believes that the share price will reflect this higher price after the new product is released next fall. The firm has announced plans to raise $100 million from investors to build a new factory.
a) How many new shares will be issued if the firm raises the capital prior to the release of the new product?
b) How many new shares will be issued if the firm raises the capital after the release of the new product?
c) Assume that the firm raises the capital prior to the release, what will the share be traded for after the release?
d) Assume that the firm raises the capital after the release, what will the share be traded for after the release?