Question

A company is considering a new project with a net present value of $22,145 and an...

A company is considering a new project with a net present value of $22,145 and an initial cash outlay for fixed assets of $106,450. The company is planning on funding this project by selling 2,250 new common shares. Currently, there are 39,850 common shares outstanding, and the book value per share is $26.55. What will be the new book value per share if this project is implemented?

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Answer #1

We can calculate the desired result as follows:

Existing Book Value of company's shares = No.of shares * Book value per share

= 39,850 * 26.55

= $ 1,058,017.50

Initial outlay of Fixed assets for new project = $ 106,450

Number of shares issued to pay initial outlay costs = 2250 shares

Total Shares = Existing Shares + New shares

= 39,850 + 2,250

= 42,100 Shares

New Book Value = Existing Book Value + Initial Outlay of Fixed assets

= 1,058,017.50 + 106,450

= $ 1,164,467.50

New book value per share = New Book Value / Total Shares

= 1,164,467.50 / 42,100

= $ 27.659 or $ 27.66

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