Consider the following scenario: You are the financial manager of a firm that is contemplating investing in a new project that you expect will generate cash flows of $10,000 per year for five years and then $15,000 per year for another two years. At the end of seven years you expect to sell the project's assets for $50,000. You believe that you should earn at least 14% to compensate the shareholders for the project's risk. There are specific questions that need to be answered:
Explain the process for evaluating this project.
What is the present value of the project's terminal value?
What is the most that you should pay for this project?
Is this project consistent with the firm's goal assuming you can invest $25,000 in this project?
What is the primary goal of the firm?