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You are a research scientist with a new drug idea. It costs $100 million to create a lab and test it. If it pans out you get $500 million. If it does not you can resell the lab for the same amount you paid. You do not have $100 million in cash. The discount rate is 0% and the promised and expected rates are equal. You do not know any better than your outside investors whether the drug will be successful. Given an NPV of $200 million.
a) What is the cost of debt?
b) If you borrowed the $100 million how much would you expect to keep in each instance? How much would your creditors get in each instance?
c) Assuming there is no debt and selling equity at a fair price how much would you have to sell and how much would you expect to keep in each instance?
the natural financial goal of the corporation is to maximize market value.
Under what circumstances might we see both corporation and partnership producing same goods and services in light of these required before-tax rates of return?
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On the income statement, sales revenue, minus cost of goods sold and operating expenses, equals which of the following?
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