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You are the CEO of a small pharmaceutical company. Your company is privately held, with 75 shareholders; however, you own a majority of the shares and thus, you maintain control over the Board of Directors. Your company successfully developed and patented a drug to treat a rare blood disease. You have recouped your research and development costs on the drug and are making a profit by selling the pills at $10 each. Because the number of people with the disease is very small, no other companies have entered into the market for this drug. Big Drugs, Inc. has approached you about acquiring the rights to the drug. Big Drug’s offer is substantial and if you were to accept it, you would likely be able to fund research for a drug for a related, and also rare and debilitating disease. However, you have heard speculation by many in the industry that Big Drug has been implementing a strategy of buying up the patents on rare disease/small market drugs in order to raise the prices significantly. The last purchase of this type by another big pharma company resulted in an increase in the price from $15.00 per pill to $500 per pill. Meanwhile, the FDA is investigating the price hikes of certain drugs. The agency is considering a program to subsidize the prices through an arrangement with insurance companies. The proposed subsidy would allow you to increase the price to approximately $14.00 per pill. Even with this increase, however, your profits will fall far short of the amount to be gained from the Big Drug purchase offer. You need to respond to the offer from Big Drug. You are pretty confident that selling will result in a price hike that will create an immense hardship on the patients using the drug. Your investors are anxious for you to seize the opportunity to turn a tidy profit and have sufficient resources to boost your R&D. As you consider how to advise the Board of Directors, what are the ethical considerations involved in this decision? Choose two ethical theories that you studied this term that you think can help you make the “right” decision. Describe how those theories apply to this situation, and what decision would be ethical using each of the theories. Finally, what is your recommendation to the Board of Directors? Use the IRAC format to respond to the question.
Assume the total cost of a college education will be $410,000 when your child enters college in 15 years. You presently have $68,000 to invest. Required: What annual rate of interest must you earn on your investment to cover the cost of your child’s ..
Chan Chin bought a used Lexus ES300 priced at $25,750, a $2,600 down payment was made. The loan was for 36 months with monthly payments of $767. From this information, calculate (a) the amount financed, (b) the finance charge, (c) the deferred paymen..
A car cost $45000 inclusive of gst. Option:1 Fully Amortizing loan with 10.25% per annum fixed. Option: 2 Interest are pre computed at 10.25% per annum. Loan term for both option is 5 years. Customer wants to pay a down payment of 10% of car value an..
Finance balance sheet: KneeMan Markup Company has total debt obligations with book and market values equal to $30 million and $28 million, respectively. It also has total equity with book and market values equal to $20 million and $70 million, respec..
Calculate the Project and Equity Free Cash Flows for the following scenario. We want to finance a project with 30% debt (70% equity). We expect $1,000,000 in sales for next year; Hint: to determine the EFCF, you will need to determine the value of th..
Mr. G. Buffon has been hired to manage pension fund for Zaza Company, a small information technology firm. The company currently has $20 million in the fund and expects to have cash inflows of $4 million a year for the first six years followed by cas..
Assume that one euro (EUR) currently costs NOK 8.00 in the spot-market and NOK 7.6500 in the 6- month’s forward market. The current, one-year interest rate on NOK-denominated, government issued money-market securities is 3.25 percent, while the one-y..
Franchising is a win-win combination; both franchisees and franchisors are guaranteed success. The main reasons small businesses fail are poor management skills on the part of owners, inadequate capital, and poor planning.
You started working at the age of 32 and thanks to your finance Professor you had religiously invested $300 per month into a fund which was earning 9% per year. You are currently 42 years old and suddenly retirement at age of 65 seems closer than eve..
The Black Bird Company plans an expansion. The expansion is to be financed by selling $181 million in new debt and $123 million in new common stock. The before-tax required rate of return on debt is 8.30% percent and the required rate of return on eq..
Identify and briefly describe two phases of the capital budgeting process. (b) Would saving time by skipping one of these phases in the capital budgeting process make sense financially?
Chip’s Home Brew Whiskey management forecasts that if the firm sells each bottle of Snake-Bite for $20, then the demand for the product will be 15,000 bottles per year, whereas sales will be 90 percent as high if the price is raised 10 percent. What ..
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