Estimating NPV (20 marks)

Tara 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.

Q1. Is this a good investment?

Q2. If there are 1,000 shares of stock outstanding, what will be the effect on the price per share of taking this investment