A company has 100 million shares outstanding. The share price of a company’s stock is £15 just prior to announcing a £100 million expansionary investment in a new plant, and the company estimates that the present value of future after-tax cash flows will be £150 million. Analysts, however, estimate that the new plant’s profitability will be lower than the company’s expectations. The company’s stock price will most likely:
- drop below £15 per share due to the cannibalization of revenue from the new plant.
- increase by less than £0.50 per share.
- increase by the new plant’s net present value per share.
