Answer to Question #173948 in Economics for Ray

Question

In January 2017, Solar Power, a relatively new firm, launched a new solar switch for the Asian market. They floated 1m shares at an initial price of $300 a share. In January 2018, the financial data showed that Solar Power sold 10m solar switches at a price of $10. The total cost of production was $77m. The firm made a profit of $23m.

1. Find the earnings per share.
2. If the dividend from the share is treated as a perpetual stream of earnings per share, and the rate of discount is 5%, then what is the market price of a share after January 2018?
3. Was share under-priced in 2017?
4. Why was it under-priced?
5. why did these two traders purchase the shares before the arrival of the financial data in in 2018?

Answer 1

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