An analyst knows with certainty that Salada Corporation will exist for two years and have the following cash flows per share:

Year 1 Year 2

Revenue $100 $100

Costs $ 75 $ 75

Net cash flows $ 25 $ 25

What is the stock price of Salada Corporation, if the opportunity cost of capital is 7 percent?

b) Using the information from the table in part (a) above the analyst realizes that Salada Corporations costs may not be $75 per share with certainty. Instead, each year there is a 10 percent chance that a worker will be seriously injured and that Salada will have to pay the employees medical expenses and lost wages. If any injury does occur, Salada costs equal $95 per share. If an injury does not occur (which has a probability of 0.8), then Saladas costs equal $89.22 per share.

1. Prepare a new table showing this new information about Salada Corporation.
2. What is Saladas expected net cash flow in each year?
3. If the opportunity cost of capital is 7 percent, what is the stock price?