Stand Still Co

Multiple Choice

Stand Still Co. has been earning $1 per share on 400,000 shares, and paying out all of the earnings. The discount rate for a company of this risk is 10%. The company has an investment opportunity with a cost of $1,500,000 and expects to earn $230,000 after taxes, but they must reinvest 35% of these earnings to continue to maintain the expansion in earnings. What is the value of the company without the investment and what is the value with the investment?

A) $200,000; $1,500,000
B) $4,000,000; $6,600,000
C) $4,000,000; $3,995,000
D) $400,000; $15,000,000