An all-equity firm has 100,000 shares outstanding worth $10 each. The firm is considering a project that requires an investment of $400,000 and has an NPV of $50,000. The company is also considering financing this project with a new issue of equity.
a. What is the price at which the firm needs to issue the new shares so that the existing shareholders are indifferent to whether the firm takes on the project with this equity financing or does not take on the project?
b. What is the price at which the firm needs to issue the new shares so that the existing shareholders capture the full benefi t associated with the new project?
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