Compute the present value of stock

Assignment Help Finance Basics

Reference no: EM1361017

The Ectoplasto Drug Company's common stock is considered highly speculative. Security analysts believe that over the next year four possible outcomes are possible for the company's research program. There is a 60% chance that their new drug will be successful, in which case the stock will be worth $240 per share. There is a 5% chance that the drug will be a complete failure, in which case the stock will be worthless. There are two mid-range outcomes: a 15% chance of a good but not spectacular drug, and a 20% chance of an average selling drug. With a good drug the stock will be worth $180 per share, while an average drug will produce a stock price of $75 per share. If the appropriate discount rate is 25%, how much should you be willing to pay for the stock today?

Reference no: EM1361017

Questions Cloud

Illustrate what effect would this have on her dress price : Illustrate what effect would this have on her dress price in the short run, assuming she is following the rules of profit maximizes.

How far apart are the fringes in the center of the pattern : A parallel beam of light from a He-Ne laser, with a wavelength of 662nm, falls on two very narrow slits 0.050 mm apart. How far apart are the fringes in the center of the pattern if the screen is 2.5m away.

Stress management proposal : Describe a stress management technique to try and decribe in reducing stress. Would you be inclined to use that technique again? Would you recommend it to others?

Illustrate what is the probability that a brook trout length : The length of a Colorado brook trout is normally distributed. Illustrate what is the probability that a brook trout's length exceeds the mean.

Compute the present value of stock : The Ectoplasto Drug Corporation's common stock is considered highly speculative. Security analysts think that over next year 4 possible outcomes are possible for corporation's research program.

Explain the company specializes in compact washers : Explain The company specializes in compact washers and dryers for countries where consumers have less living space

Comparison between two personality types : How much good scientific support is there for the idea that there are two types of people - ambitious aggressive type As and mellow get-to-it later type Bs?

How long will it take until the cars speed : A bat flying in a cave emits a sound and receives its echo 0.37s later. How far away is the cave wall? (Hint: The sound has to travel to the wall and then back again. Use 340 m/s for the speed of sound.)

Explain the company specializes in compact washers : Explain The company specializes in compact washers and dryers for countries where consumers have less living space

User Account

All Pages