Research scientist with new drug idea

Assignment Help Financial Management
Reference no: EM131554730

You are a research scientist with a new drug idea. Only you can know how good it is. 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%.

a. What is the expected NPV if there is a 50% chance of the drug succeeding?

b. If you know up front the drug works would you choose to issue debt or equity?

c. What about if you knew it wouldn't work?

Reference no: EM131554730

Questions Cloud

Statements regarding modigliani and miller propositions : Which of the following statements regarding Modigliani and Miller (MM)’s propositions is most accurate?
How much would your creditors get in each instance : 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?
Types of batteries for use in electric golf carts : The City Country Club is considering two types of batteries for use in electric golf carts.
What is the company as whole book value d-e ratio : What is the company as a whole’s book value D/E ratio if it funds the expansion using: a. All debt b. All equity.
Research scientist with new drug idea : You are a research scientist with a new drug idea. It costs $100 million to create a lab and test it.
What is the interest tax shield from debt : If Braxton’s marginal corporate tax rate is 40%, what is the interest tax shield from Braxton’s debt in each of the next five years?
Difference between financial distress and economic distress : What do the two liquidity ratios current and acid actually measure and reveal? Difference between financial distress and economic distress?
Reduce pretax operating costs : Consider a $10,000 machine that will reduce pretax operating costs by $3,000 per year over the next five years. Should we accept the project?
What is mixture of debt and equity used to fund expansion : What is the mixture of debt and equity used to fund the expansion if it funds it using the book value D/E ratio?

Reviews

Write a Review

Financial Management Questions & Answers

  Preparing a balance sheet

Preparing a Balance Sheet. Prepare a balance sheet for Alaskan Strawberry Corp. as of December 31, 2016, based on the following information: cash = $197,000; patents and copyrights = $863,000; accounts payable = $288,000; accounts receivable = $265,0..

  Club membership costing

Eddy purchased a club membership costing $2,530. He made a down payment of $530 and financed the balance with an installment loan for 48 months. If the payments are $59.27 each month, use Table 13-1 from your text to find the APR.

  Average cheque size be for fee alternative to be less costly

Lockboxes. The financial manager of JAC Cosmetics is considering opening a lockbox in Calgary. Cheques cleared through the lockbox will amount to $300,000 per month. The lockbox will make cash available to the company three days earlier. What must th..

  What happens to the demand for real balances

What happens to the demand for real balances if interest rates on time deposits rise relative to interest rates on checkable deposits?

  What are the common shareholders residual claims to earnings

Folic Acid Inc., has $20 million in earnings, pays $2.75 million in interest to bondholders, and $1.80 million in dividends to preferred shareholders. What are the common shareholders’ residual claims to earnings? What are the common shareholders’ le..

  What proportion of rights were actually exercised

The Archway Corporation produces PC's. It has grown rapidly and needs to raise $45 million in new equity. It has decided to do this using a rights issue.  Suppose the company anticipates all rights will be exercised but in fact they are not. If the e..

  Digital organics has the opportunity to invest

Digital Organics (DO) has the opportunity to invest $0.98 million now (t = 0) and expects after-tax returns of $580,000 in t = 1 and $680,000 in t = 2. The project will last for two years only. The appropriate cost of capital is 14% with all-equity f..

  Considering new toy that will produce the cash flows

Soft and Cuddly is considering a new toy that will produce the following cash flows. Should the company produce this toy based on IRR if the firm requires a rate of return of 17.5 percent?

  Weighted average-what is company target debt-equity ratio

Fama's Llamas has a weighted average cost of capital of 11 percent. The company's cost of equity is 14 percent, and its pretax cost of debt is 9 percent. The tax rate is 40 percent. What is the company's target debt-equity ratio?

  Payback period considers timing and amount of cash flows

The payback period rule states that you should accept a project if the payback period is less than one year. The payback period considers the timing and amount of all of a project's cash flows. You are analyzing a short-term project with conventional..

  Cost allocation on a piece of land if the original cost

How do I figure out cost allocation on a piece of land if the original cost was 250,000, market value is 300,000, net book value is 250,000, and offer to purchase is 300,000?

  Fresher foods sued vernon for damages

Fresher Foods, Inc., orally agreed to purchase one thousand bushels of corn for $1.25 per bushel from Dale Vernon, a farmer. Fresher Foods paid $125 down and agreed to pay the remainder of the purchase price on delivery, which was scheduled for one w..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd