Boomer Equipment Company currently has assets of $250 million and expects to earn a 10% return on assets during the year. There are 20 million shares…

Boomer Equipment Company currently has assets of $250 million and expects to earn a 10% return on assets during the year. There are 20 million shares of BEC stock outstanding. The firm has an opportunity to invest in a minimally positive NPV project that will cost $25 million over the course of 2006. BEC needs to determine whether it should finance this investment by retaining profits over the course of the year of pay the profits earned as dividends and issue new shares to finance the investments. Show that the decision is irrelevant in a world of frictionless markets.

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