Zara 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.

Q$1.$ How does one calculate the NPV of a project?

Q$2.$ What is the NPV rule?

Q$3.$ Why does this rule lead to good investment decisions?

Q$4.$ Is this a good investment?

Q$5.$ If there are $1,000$ shares of stock outstanding, what will be the effect on the price

per share of taking this investment?

Answer: