Strawberry Tech expects net cash flows of $100,000 by the end of this year. Net cash flows will stay the same if the firm makes no new investments. Now the frim has the opportunity to add a line of tablet computers to the business. The immediate outlay for this opportunity is $100,000, and the net cash flows from the line will being one year from now. The tablet business will generate $32,000 in additional net cash flows. These net cash flows will grow at 5%. The firm's discount rate is 15%, and 200,000 shares of Strawberry Tech stock are outstanding.
a) What is the price per share of Strawberry Tech stock without the tablet line?
b) What is the value of the growth opportunities that the tablet line offers?
c) Once Strawberry Tech adds the tablet line, what is the price of Strawberry Tech stock?