The firm plans to increase its fixed assets by 15% in 2021 (from the 2020 level) from an increase in equity alone. What level of stock price would allow the firm to execute its plan while maintaining its return-on-equity and P/E ratio? Assume that the firm will not raise additional capital by increase the humber of shares in the stock market (i.e., the outstanding shares at the end of 2021 will remain at 100 million).
The firm plans to increase its fixed assets by 15% in 2021 (from the 2020 level) from an increase in equity alone. What level of stock price would allow the firm to execute its plan while maintaining its return-on-equity and P/E ratio? Assume that the firm will not raise additional capital by increase the humber of shares in the stock market (i.e., the outstanding shares at the end of 2021 will remain at 100 million).
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 5P
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