Viento Windmills is a utility that charges customers for their wind generated electricity. With their current technology,
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Question:
A one-time investment one year from now (t = 1) of $19 million for a state of the art lubricant system for the windmills will lead to extra cash flows that stay constant at $10 million per year starting the following year (t = 2) and lasting forever. If Viento plans to make the investment and cost of equity capital (the discount rate for equity) is 8.5%.
Calculate the increase or decrease in the share price of Viento as a result of this decision. Draw time line to understand what is going on.
Related Book For
Intermediate Accounting Volume 2
ISBN: 9781119497042
12th Canadian Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy
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