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The stock of “Orion S.A.” is trading €100 per share. Currently, the share capital of the
company consists of 10,000 shares and it not have any debt. Below, you can see the
balance sheet of the company in market values:
ORION Balance Sheet
Assets €1,000,000 Equity €1,000,000

“ORION S.A.” is thinking of adopting a new project that will have in present value
terms €210,000 net cash flows. The initial investment outlay for the project is only
€110,000. “Orion S.A.” is considering raising the necessary capital for this investment
by issuing new equity. All potential new shareholders will be fully aware of the
project’s value and cost, and are willing to pay fair value for the new common shares.
a. How many shares of common stock must be issued, and at what price, to raise the
required capital?
b. What is the effect, in any, of this new project on the value of the stock of the
existing shareholders?
Part B
Discuss upon the usage of the net present value rule in order to analyze mutually
exclusive projects in the cases of:
a) Postponing the investment expenditure,
b) How to choose between projects with unequal lives,
c) When to replace equipment? (<250 words)

All the rest was answered and Part B c was excluded

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