A firm recently made a large investment to upgrade technology. These improvements won't impact performance in...

A firm recently made a large investment to upgrade technology. These improvements won't impact performance in short run, but will reduce future costs significantly. What effect will this investment have on the firm's earnings per share this year? What effect might this investment have on the company's intrinsic value and stock price?

Expert Solution

When an investment is made in large amount in future projects it will be leading to a deduction in the overall earning of the company in the short-run, because of its capital expansion but it can reduce the cost of the company in the long run, and increase the earning of the company in the long run, as these are capital budgeting decisions mostly for expansion and growth of the company.

This investment will decrease the Earning per share of the company, because this has led to an investment in the various projects of the company

This investment will increase the intrinsic value as well as stock price because investors are futuristic in nature and they will not discount the today's event and rather they will be discounting the futuristic event as this investment can lead to cost cutting and increase in the overall growth of the company, and intrinsic value of the share will also increase because it will be having a multiple effect on its books of accounts through cutting of cost and expansion of its books of accounts

jeff jeffy answered 1 year ago

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