In a semi-strong efficient stock market, which of the following is the most likely share price immediately after the announcement of the new investment?

A company has:

• 10 million $1 ordinary shares in issue

• A current share price of $5.00 a share

• A WACC of 15%

The company holds $10 million in cash. No interest is earned on this cash.

It will invest this in a project with an expected NPV of $4 million.

In a semi-strong efficient stock market, which of the following is the most likely share price immediately after the announcement of the new investment?
A . $5.40
B . $6.40
C . $6.80
D . $5.30

View Answer

Answer: A