Projected cash flow by region

Assignment Help Finance Basics

Reference no: EM13826379

Problem:

Neo Pharmaceuticals is a start-up pharmaceutical company focused on the development and commercialization of non-steroidal anti-inflammatory drugs world-wide. The company recently obtained FDA approval for one of its new drugs, vacuus poena and must now decide between a product launch in Europe or the United States. Since the company has spent the majority of its funding on the development of vacuus poena, it can only afford to market the new product in one geographic region. The company estimates that it will cost $250 million to launch the product in the U.S. and $50 million to establish a smaller presence in Europe. Management's required payback period for this type of investment is 3.5 years. The Vice President of Marketing and Sales has estimated the future cash inflows by region in the table below.

Projected Cash Flow By Region

For R Vacuus Poena ($ millions)

Region	IRR	Launch Costs	2011	2012	2013	2014	2015
US	28%	$250	$ 35.40	$80.76	$129.80	$160.92	$176.15
Europe	37%	$50	$17.70	$22.28	$24.65	$31.03	$32.04

Calculate the company's cost of capital using the following assumptions: i) the company can borrow money at 5% interest; ii) shareholders expect a 20% return on their investment; iii) 40% of the company is financed by debt and 60% by equity.

Cost of Capital =

The CFO of the company has mandated that all investment proposals use a hurdle rate equal to the cost of capital plus 4%. What is the net present value (NPV) for each region? Show all work used to arrive at answers.

NPV_US=

NPV_EU=

What is the exact payback period for each region? Show all work used to arrive at answers. Round payback periods to one decimal place.
Which region would the company choose for a product launch if the decision were based solely on the payback period method?
Which region would the company choose for a product launch if the decision were based solely on the IRR method?
Which region would the company choose for a product launch if the decision is based on the NPV method? Explain why.

Additional Information:

This question is basically belongs to the Finance as well as it discusses about calculating NPV, IRR, Payback period, etc for the firm.

Reference no: EM13826379

Questions Cloud

Choosing between relatively precise data over accurate data : Choosing Between Relatively Precise Data Over Accurate Data

Discuss the welfare effects of monopolies and oligopolies : The problem related to Economics and the problem is about an economic consulting firm specializing in economic structures. Markets such as cartel, oligopoly and monopoly have been discussed in detail.

Calculating short-term liquidity with current ratio : Which company has the strongest short-term liquidity as measured by the current ratio? Which company is NOT able to pay off all current liabilities at this time?

Importance of customer experiences in digital marketing : Importance Of Customer Experiences In Digital Marketing Analytics

Projected cash flow by region : Neo Pharmaceuticals is a start-up pharmaceutical company focused on the development and commercialization of non-steroidal anti-inflammatory drugs world-wide.

Study of organizational structure of heb : The problem belongs to Management and it is about study of organizational structure of HEB. HEB is a chain of grocery stores based out of Texas

When would the organisers recognize the expense : Describe the alternatives the organisers have in relation to recognizing revenues. Which would you recommend and why?

Why do many companies fail to develop products : Why do many companies fail to develop products

Explain the economic plan of canada to return budget balance : The problem is relates to Economics and problem is a critical examination of the Canadian economy. Canadian economy has been facing budgetary imbalances for quite some time.

User Account

All Pages