What is the NPV of the R-D investment

Assignment Help Financial Accounting
Reference no: EM132863645

Question - You are the CFO of a drug company, and you must decide whether to invest 25M dollars in R&D for a new drug. If you conduct the R&D, you believe that there is a 5% chance that the research will produce a useful drug. If the research is successful, investment in the drug will require an outlay of 300 million dollars. The drug will likely generate annual profits of 90 million for 12 years, until the patent expires. After that, it will generate a cash flow equal to 10 million a year in perpetuity (no growth). The discount rate is 6%.

If the research is successful, what is the net present value of the drug cash flows?

If you invest in R&D, you estimate that it will take 3 years to know whether the drug is successful or not. What is the NPV of the R&D investment?

Reference no: EM132863645

Questions Cloud

Factors that affect the selection of a research topic : Identify and describe three factors that affect the selection of a research topic.
Who is right the CFO or the board member : The CFO is proposing that her company issues debt to repurchase shares, Who is right, the CFO or the board member
Conference on collaboration technologies : You have just spent the week at a conference on collaboration technologies and are convinced that your company needs to implement a new information system
Identify a real-world example of price discrimination : Identify a real-world example of price discrimination (preferably not one from the unit lesson), and explain which type of price discrimination it is.
What is the NPV of the R-D investment : If you invest in R&D, you estimate that it will take 3 years to know whether the drug is successful or not. What is the NPV of the R&D investment
Elements of the presales activity in the fulfillment process : Explain and discuss the Elements of the Presales Activity in the fulfillment process.
What can managers do to improve skills : What can managers do to improve skills and what skills should they improve?
What is a revenue cycle plan for a hospital setting : What is a revenue cycle plan for a hospital setting? I need to create one for my class but I am having trouble understanding what that is, where i can find info
Prepare the necessary journal entry or entries : Prepare the necessary journal entry or entries under each of the following independent situations: Record the spoiled units

Reviews

Write a Review

Financial Accounting Questions & Answers

  Purchased a large amount of inventory

Nichole Jordan comes to you for advice. She has just purchased a large amount of inventory with the terms 1/30, n/90. The amount of the invoice is $323,000.

  Compute the final demand for each type of product

National exporters (NE) Ltd manufactures Agricultural, Industrial and mineral products. Compute the final demand for each type of product

  General transfer pricing rule maximum amount willing to pay

general transfer pricing rule maximum amount willing to pay as transfer price.fragrance inc. has two divisions-the

  Definition for conceptual framework

Justify the recognition of the Asset based on the definition and recognition criteria in the conceptual framework. ?Joyce Ltd produces and sells masks

  What the company inventory balance at the end of fiscal is

What the company inventory balance at the end of fiscal 2013 is? Beginning Inventory, January 1, 2013: 130 units @ $10.00. Purchase 200 units @ $12.00

  Prepare an income statement for year ended on december

Prepare an Income Statement for the year ended 31 December 2019. Prepare an adjusted Trial Balance as at 31 December 2019.

  Statute of frauds and refuses to sell the laptop to buyer

Seller orally agrees to sell his laptop to Buyer for $600. Buyer tenders the purchase price but Seller asserts the Statute of Frauds and refuses to sell the laptop to Buyer.

  Pretax income and related tax rates during the years

Austin Inc. reported the following pretax income (loss) and related tax rates during the years 2011–2017. Prepare the journal entries for the years 2014-2016 to record income taxes payable (refundable), income tax expense (benefit), and the effects o..

  Prepare the general journal entries to make the corrections

Prepare the general journal entries to make (if) necessary, adjustments/corrections for the information presented to you above. Students need to use the assignment template available for download from the unit website.

  Determine balances for the costs of goods sold items

Determine balances for the Costs of Goods Sold items that would appear on Allister's consolidated financial statements for 2018

  Determine the types of accounting periods

Analyze the start-up company you created. Include in your analysis the type of company you have created, its business objectives.

  Prepare a memorandum in january 2005 for circulation

Calculate the amount that will be reflected on the group income statement of Winter Ltd for the 2004 financial year end for equity accounting of associates. Comparative figures are not required. Show all workings.

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