You are the CFO of a major pharmaceutical firm. A division manager has presented senior management with an investment opportunity.

The project would require an investment of $95 million today

If the project succeeds, it will be worth $1 billion in a year. You estimate that there is only a 10% chance that the venture would succeed. If it fails, then in a year you will scrap the project and all of your firm’s $95 million investment will be lost.

Whether the venture succeeds or fails is independent of general market conditions.

The risk-free rate is 3%, the expected return of the market is 12%, and the standard deviation of the market return is 20%. Ignore taxes.

What is the NPV of the project?

$775 million

$870 million

$2.1 million

-$95 million

Calculate the cost of each capital component—in other words, the after-tax cost of debt, the cost of preferred stock (including flotation costs), and the cost of equity (ignoring flotation costs). use both the capm method and the dividend growth approach to find the cost of equity. calculate the cost of new stock using the dividend growth approach. what is the cost of new common stock based on the capm? (hint: find the difference between re and rs as determined by the dividend growth approach and then add that difference to the capm value for rs.)assuming that gao will not issue new equity and will continue to use the same target capital structure, what is the company’s wacc? e. suppose gao is evaluating three projects with the following characteristics. each project has a cost of $1 million. they will all be financed using the target mix of long-term debt, preferred stock, and common equity. the cost of the common equity for each project should be based on the beta estimated for the project. all equity will come from reinvested earnings. equity invested in project a would have a beta of 0.5 and an expected return of 9.0%.equity invested in project b would have a beta of 1.0 and an expected return of 10.0%.equity invested in project c would have a beta of 2.0 and an expected return of 11.0%.analyze the company’s situation, and explain why each project should be accepted or rejected g

Atrough in the business cycle occurs when

After jeff bezos read about how the internet was growing by 2,000 percent a month, he set out to use the internet as a new distribution channel and founded amazon, which is now the world's largest online retailer. this is clearly an example of a(n)a. firm that uses closed innovation. b. entrepreneur who commercialized invention into an innovation. c. business that entered the industry during its maturity stage. d. exception to the long tail business model