User Account

All Pages

What npv would you estimate for the investment

Assignment Help Business Management
Reference no: EM131207823

  1. Life Products Inc. is s a small pharmaceutical company that has developed a drug that treats immune disorders. The drug has been approved for use and has 15 years left of its patent life. The company is considering two mutually exclusive options:
    1. Invest $750 million in capital, depreciable straight line over 15 years to a salvage value of zero, and produce the drug itself. The drug is expected to generate $ 90 million in after-tax operating income each year for the 15 years.
    2. License the drug to Pfizer and receive a fixed licensing fee each year from Pfizer. There will be no initial investment and the only risk that Life Products faces is that Pfizer may default.
    You are provided with the costs of debt, equity and capital for both Life Products and Pfizer in the table below:
 

Pre-tax cost of debt

After-tax cost of debt

Cost of equity

Cost of capital

Life Products

8.00%

4.80%

14.00%

12.50%

Pfizer

5.00%

3.00%

9.00%

7.50%

a. Assuming that Life Products invests $750 million in capital and produces the drug itself, what NPV would you estimate for the investment?

b. What annual licensing fee would Pfizer have to offer Life Products for the licensing deal to create more value for Life Products than Health Products producing the drug itself?

Reference no: EM131207823

Questions Cloud

Discuss ethics and governance in explaining financial stress : Discuss the ethics and governance in explaining the company's financial stress . Was liabilities a majorfactor contributinng to the liquidation of the company?
Write the relational schema and draw its dependency diagram : Write the relational schema, draw its dependency diagram, and identify all dependencies, including all partial and transitive dependencies.
Importance of implementing an sms : Briefly explain the history and evolution of system safety as well as the components and theory of an SMS. Discuss the roles of the ICAO, the FAA and other State safety programs in aviation safety management. Analyze the importance of implementin..
Who is your target market : 1. Briefly describe three (3) different ideas you have had for an entrepreneurial venture. Is the venture a product, service, or combination? Who is your target market? Is the market local, regional, national, or international?
What npv would you estimate for the investment : What annual licensing fee would Pfizer have to offer Life Products for the licensing deal to create more value for Life Products than Health Products producing the drug itself?
How many additional daily visits must be generated to break : Does the clinic have any value to the hospital beyond that considered by the numerical analysis just conducted? Do the actions by Baptist Hospital have any bearing on the final decision regarding the clinic?
Find the internal rate of return promised by the new machine : what would be the total annual cash inflows associated with the new machine for capital budgeting purposes?- Find the internal rate of return promised by the new machine to the nearest whole percent.
Sustaining employee performance paper : Identify two jobs within the company of your choice. Describe the general function of performance management systems. If your assigned company does not use a performance management system, would you recommend it use one? Why or why not?
Advantages and disadvantages of fdi to the host country : Discuss in detail the significance of Vernon's Product Life Cycle theory to Foreign Direct Investment.? Discuss fully the advantages and disadvantages of FDI to the host country.

Reviews

Write a Review

Business Management Questions & Answers

  Caselet on michael porter’s value chain management

The assignment in management is a two part assignment dealing 1.Theory of function of management. 2. Operations and Controlling.

  Mountain man brewing company

Mountain Man Brewing, a family owned business where Chris Prangel, the son of the president joins. Due to increase in the preference for light beer drinkers, Chris Prangel wants to introduce light beer version in Mountain Man. An analysis into the la..

  Mountain man brewing company

Mountain Man Brewing, a family owned business where Chris Prangel, the son of the president joins. An analysis into the launch of Mountain Man Light over the present Mountain Man Lager.

  Analysis of the case using the doing ethics technique

Analysis of the case using the Doing Ethics Technique (DET). Analysis of the ethical issue(s) from the perspective of an ICT professional, using the ACS Code of  Conduct and properly relating clauses from the ACS Code of Conduct to the ethical issue.

  Affiliations and partnerships

Affiliations and partnerships are frequently used to reach a larger local audience? Which options stand to avail for the Hotel manager and what problems do these pose.

  Innovation-friendly regulations

What influence (if any) can organizations exercise to encourage ‘innovation-friendly' regulations?

  Effect of regional and corporate cultural issues

Present your findings as a group powerpoint with an audio file. In addition individually write up your own conclusions as to the effects of regional cultural issues on the corporate organisational culture of this multinational company as it conducts ..

  Structure of business plan

This assignment shows a structure of business plan. The task is to write a business plane about a Diet Shop.

  Identify the purposes of different types of organisations

Identify the purposes of different types of organisations.

  Entrepreneur case study for analysis

Entrepreneur Case Study for Analysis. Analyze Robin Wolaner's suitability to be an entrepreneur

  Forecasting and business analysis

This problem requires you to apply your cross-sectional analysis skills to a real cross-sectional data set with the goal of answering a specific research question.

  Educational instructional leadership

Prepare a major handout on the key principles of instructional leadership

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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