Question

a firm accepts a project whose npv is $4 million. if the firm has 77 million shares outstanding and the stock market is efficient, by how much do you expect the share price to change when the market learns of the new project? round your answer to the nearest penny.

Answer 1

The expected change in share price due to the new project with a $4 million NPV for a firm with 77 million shares is roughly $0.05 when the information is absorbed by an efficient market.

Step-by-step explanation:

If a firm accepts a project whose Net Present Value (NPV) is $4 million and the firm has 77 million shares outstanding, we can calculate the impact on the share price by dividing the NPV by the number of shares.

In an efficient stock market, this is how much we could expect the share price to change when the market learns of the new project. Therefore, the expected change in share price would be:

$4,000,000 NPV / 77,000,000 shares = approximately $0.052 per share.

Thus, rounding to the nearest penny, we would expect the share price to increase by $0.05 when the market learns of the new project.