Pharma stock price today with this new project

Assignment Help Financial Management

Reference no: EM132007926

ABC Pharma produces an OTC drug and earns its entire revenue from it. ABC Pharma is 100% equity financed and is expected to earn $ 100 per share as profit in the coming year. Currently the firm earns a return on investment of 20% and has a retention ratio of 50% of earnings. The cost of equity of ABC Pharma is 15%. ABC Pharma is faced with a new investment opportunity which requires a one-time investment of $ 30 per share in year 1. This new project will generate a return of 5% on invested capital each year forever. The opportunity cost of this project is also 15%. ABC Pharma’s management will continue to invest in the older product as scheduled and the investment in the new project will be funded through a cut in dividend of $30. What is the value of ABC Pharma’s stock price today with this new project?

Reference no: EM132007926

Questions Cloud

Two different groups of customers : Suppose the monopoly has a constant marginal cost of 0 and can sell its good to two different groups of customers.

There are two medium sized firms : There are two medium sized firms, one headquartered in Wisconsin (Firm A) and the other in Minnesota (Firm B) and they are about equal in size.

Two different groups of customers : Suppose the monopoly has a constant marginal cost of 0 and can sell its good to two different groups of customers.

Discuss reform actions that the us government has taken : Describe and discuss some of the ethical concerns or problems that exist because of the dominant form of employer-sponsored health insurance.

Pharma stock price today with this new project : What is the value of ABC Pharma’s stock price today with this new project?

Factory and manufacturing jobs : Do you think that factory and manufacturing jobs that my family and probably many of yours once had to make a living.

Calculate the free cash flow for cellular access : Calculate the free cash flow for Cellular Access for the most recent fiscal year.

Advantages and disadvantages of nafta : What are the advantages and disadvantages of NAFTA and how can it be tweaked to enhance the economic benefits of Mexico, Canada, and the United States?

What variable to include in a multiple regression : How do we choose what variable to include in a multiple regression? After some research

User Account

All Pages