Hectorivas Biotech is considering buying a very small biotechnology research firm that develops products that are ultimately licensed to major pharmaceutical companies such as Pfizer, Merck and Eli Lilly. Because of the high development costs typically associated with this industry, negative cash flows are forecasted for the first two years of the forecast period. In year three and beyond, licensing fees are expected to generate positive cash flows. Annual cash flows are provided below. Due to the emergence of competitive products, cash flow is expected to grow at a rate of a modest 6% annually after the fifth year. The discount rate for the first five years is estimated to be 22% and then drop to 11% beyond the fifth year. As part of the combination, Hectorivas estimates the present value of net synergies to be $45 million. YearCash Flow1(14)2(9)36416524 Calculate the minimum and maximum purchase prices for this small biotechnology target. What would the initial offer price be if Hectorivas decided to share 35% of the net synergies with the small biotechnology target’s shareholders?
Hectorivas Biotech is considering buying a very small biotechnology research firm that develops products that are ultimately licensed to major pharmaceutical companies such as Pfizer, Merck and Eli Lilly. Because of the high development costs typically associated with this industry, negative cash flows are
YearCash Flow1(14)2(9)36416524
Calculate the minimum and maximum purchase prices for this small biotechnology target.
What would the initial offer
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