Sinclair Pharmaceuticals, a small drug company, hasdeveloped a vaccine that will protect againstHelicobacter pylori, a bacterium that is the cause of anumber of diseases of the stomach. It is expected thatSinclair Pharmaceuticals will experience extremely highgrowth over the next three years & will reinvest all of itsearnings in expanding the company over this time.Earnings were $1.65 per share before the development ofthe vaccine (in year 0) & are expected to grow by 40%per year for the next three years. After this time, it isexpected that growth will drop to 6% & stay there for theexpected future. Four years from now Sinclair will beginpaying dividends that are equal to 75% of its earnings. Ifits equity cost of capital is 12%, what is the value of ashare of Sinclair Pharmaceuticals today?

1. **Earnings Growth Projection**: - The problem states that earnings per share (EPS) were $1.65…

Answered: Sinclair Pharmaceuticals, a small drug…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Following the outbreak of the Novel Coronavirus (COVID 19), CPC a pharmaceutical companyis considering introducing a new vaccine unto the market to help fight the virus. This will requirethe injection of huge capital to the tune of GH¢40,000,000 for the purchase of the equipment forproduction. It will cost CPC an additional GH¢ 5,500,000 to set up the production facility andinstall that equipment for production. Mr. Smart, the CEO of CPC believes that the vaccine couldbe manufactured in a building owned by the firm and located in East Legon. This vacant buildingand the land can be sold for GH¢ 1,500,000 after taxes. CPC will finance the production of the
BIG Pharmaceuticals Ltd. has invested $330,000 to date in developing a new typeof insect repellent. The repellent is now ready for production and sale, and theMarketing Manager estimates that the product will sell 170,000 bottles in the firstyear, 210,000 bottles in the second years and 260,000 bottles a year over the nextthree years. The selling price of the insect repellent will be $6.00 a bottle andvariable costs are estimated to be $3.00 a bottle. Second- and third-year price willbe $6.99 a bottle with a variable cost of $3.50 a bottle, Fourth- and fifth yearselling price will be $7.95 with a variable cost of $3.75. Fixed costs (excludingamortization) are expected to be $210,000 a year. The figure is made up of$165,000 additional fixed costs and $45,000 fixed costs relating to the existingbusiness that will be apportioned to the new business. These costs will increaseby 5% each year.To produce the repellent, machinery and equipment costing $650,000 will have tobe purchased…
BIG Pharmaceuticals Ltd. has invested $330,000 to date in developing a new typeof insect repellent. The repellent is now ready for production and sale, and theMarketing Manager estimates that the product will sell 170,000 bottles in the firstyear, 210,000 bottles in the second years and 260,000 bottles a year over the nextthree years. The selling price of the insect repellent will be $6.00 a bottle andvariable costs are estimated to be $3.00 a bottle. Second- and third-year price willbe $6.99 a bottle with a variable cost of $3.50 a bottle, Fourth- and fifth yearselling price will be $7.95 with a variable cost of $3.75. Fixed costs (excludingamortization) are expected to be $210,000 a year. The figure is made up of$165,000 additional fixed costs and $45,000 fixed costs relating to the existingbusiness that will be apportioned to the new business. These costs will increaseby 5% each year.To produce the repellent, machinery and equipment costing $650,000 will have tobe purchased…
You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 19 years. You expect that the drug's profits will be $4 million in its first year and that this amount will grow at a rate of 3 * 0/o per year for the next 19 years. Once the patent expires, other pharmaceutical companies will be able to produce the same drug and competition will likely drive profits to zero. What is the present value of the new drug if the interest rate is 12% per year? The present value of the new drug is $ (enter your response here) million.
You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 16 years. You expect that the drug's profits will be $5 million in its first year and that this amount will grow at a rate of 4% per year for the next 16 years. Once the patent expires, other pharmaceutical companies will be able to produce the same drug and competition will likely drive profits to zero. What is the present value of the new drug if the interest rate is 10% per year?
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(Related to Checkpoint 13.1) (Calculating expected revenues) The owner of the Petreno Pharmaceutical Company is evaluating the expected annual sales for a new line of facial care products and estimates that there is a 63 percent chance that the product line will be extremely successful, in which case it will generate sales next year of 7.6 million. However, since the new product line has a unique appeal that will require substantial advertising by its manufacturer to gain consumer acceptance, there is a 37 percent chance that revenues for next year will be a modest 1.1 million. What is the expected level of revenues for the new product line? The expected total revenue for the new line of products is $ million. (Round to two decimal places.)
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Pittsburgh Custom Products (PCP) purchased a new machine for ram-cambering large I beams. PCP expects to bend 50 beams at $1,200 per beam in each of the first 3 years, after which it expects to bend 100 beams per year at $2,900 per beam through year 12. If the company's minimum attractive rate of return is 15% per year, what is the present worth of the expected revenue? The present worth of the expected revenue is $
A surgery center specializes in high-risk cardiovascular surgery. The center needs to forecast its profitability over the next three years to plan for capital growth projects. For the first year, the hospital anticipates serving 1,300 patients, which is expected to grow by 8% per year. Based on current reimbursement formulas, each patient provides an average billing of $125,000, which will grow by 2% each year. However, because of managed care, the center collects only 25% of billings. Variable costs for supplies and drugs are calculated to be 10% of billings. Fixed costs for salaries, utilities, and so on will amount to $20,000,000 in the first year and are assumed to increase by 6% per year. Develop a spreadsheet model to predict the net present value of profit over the next three years. Use a discount rate of 4%. Complete the accompanving spreadsheet mode for the costs in Year 1 (Type whole numbers. D G H Collection % % Variable Cost % % Discount Rate Growth Rates Total Collected…
A surgery center specializes in high-risk cardiovascular surgery. The center needs to forecast its profitability over the next three years to plan for capital growth projects. For the first year, the hospital anticipates serving 1,300 patients, which is expected to grow by 9% per year. Based on current reimbursement formulas, each patient provides an average billing of $125,000, which will grow by 2% each year. However, because of managed care, the center collects only 25% of billings. Variable costs for supplies and drugs are calculated to be 10% of billings. Fixed costs for salaries, utilities, and so on will amount to $20,000,000 in the first year and are assumed to increase by 5% per year. Develop a spreadsheet model to predict the net present value of profit over the next three years. Use a discount rate of 4%. (Type whole numbers.) A 1 23456 7 Growth Rates Year 1 B Collection % Variable Cost% Discount Rate % Patients Served C % % % % Average Billing $ D Collected Amount E…

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