Corporation X is expected to earn $100 million per year in perpetuity if it does not undertake any new projects. The firm has an opportunity that requires an investment of $15 million today and another $5 million in one year. The investment will begin to generate additional earnings of $10 million two years from now and will last forever. The firm has 20 million shares of stock outstanding and the required rate of return is 15%.
a. What is the price per share if they do not make the investment?
b. What is the value of the growth opportunities resulting from the new project?