Sara has just been hired as a cost engineer by a large Pharmaceutical Company. Suppose she believes that the cash revenues from a new project will be $20,000 per year, assuming everything goes as expected. Cash costs (including taxes) will be $14,000 per year. She will wind down the project in eight years. The plant, property, and equipment will be worth $2,000 as salvage at that time. The project costs $30,000 to launch. She uses a 15 percent discount rate on new projects such as this one. Is this a good investment? If there are 1,000 shares of stock outstanding, what will be the effect on the price per share of taking this investment?
Sara has just been hired as a cost engineer by a large Pharmaceutical Company. Suppose she believes that the cash revenues from a new project will be $20,000 per year, assuming everything goes as expected. Cash costs (including taxes) will be $14,000 per year. She will wind down the project in eight years. The plant, property, and equipment will be worth $2,000 as salvage at that time. The project costs $30,000 to launch. She uses a 15 percent discount rate on new projects such as this one. Is this a good investment? If there are 1,000 shares of stock outstanding, what will be the effect on the price per share of taking this investment?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Sara has just been hired as a cost engineer by a large Pharmaceutical Company. Suppose she believes that the cash revenues from a new project will be $20,000 per year, assuming everything goes as expected. Cash costs (including taxes) will be $14,000 per year. She will wind down the project in eight years. The plant, property, and equipment will be worth $2,000 as salvage at that time. The project costs $30,000 to launch. She uses a 15 percent discount rate on new projects such as this one.
Is this a good investment? If there are 1,000 shares of stock outstanding, what will be the effect on the price per share of taking this investment?
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