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Net Present Value

Question: You are the CEO of Value-Added industries, Inc (VAI). Your firm has 10,000 shares of common stock outstanding, and the current price of the stock is $100 per share. There is no debt; thus, the "market value" balance sheet of VAI appears as follows:

VAI market Value Balance Sheet
ASSETS 1,000,000 Equity 1,000,000

You then discover an opportunity to invest in a new project that produces positive net cash flows with a present value of $210,000. Your initial costs for investing and developing the project are only $110,00. You will raise the necessary capital for this

A) What is the net present value of this project?
B) How many shares of common stock must be issued, and at what price, to raise the required capital?
C) What is the effect, if any, of this new project on the value of the stock of the existing shareholders?

Please answer the question and show the work on excel.

Thank you

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You are the CEO of Value-Added industries, Inc (VAI). Your firm has 10,000 shares of common stock outstanding, and the current price of the stock is $100 per share. There is no debt; thus, the "market value" balance sheet of VAI appears as follows:

VAI market Value Balance Sheet
ASSETS 1,000,000 Equity 1,000,000

You then discover an opportunity to invest in a new project that produces positive net cash flows with a ...

Solution Summary

Calculates the Net Present Value of a project and the effect that the project has on the share price.

$2.19