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 $3 million in its first year and that this amount will grow at a rate of 3% 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 $ million. (Round to three decimal places.) CXX

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 $3 million in its first year and that this amount will grow at a rate of 3% 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 $ million. (Round to three decimal places.) CXX

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

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You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 15 years. You expect that the drug's profits will be $3 million in its first year and that this amount will grow at a rate of 2% per year for the next 15 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 7% per year? The present value of the new drug is $ million. (Round to three decimal places.)
Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $435,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $2.8 million. The cost of the machine will decline by $215,000 per year until it reaches $2.155 million, where it will remain. If your required return is 9 percent, calculate the NPV today. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) If your required return is 9 percent, calculate the NPV if you wait to purchase the machine until the indicated year. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Should you purchase…
Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $321,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1,710,000. The cost of the machine will decline by $106,000 per year until it reaches $1,180,000, where it will remain. If your required return is 13 percent, calculate the NPV today. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $ 31,824.16 If your required return is 13 percent, calculate the NPV for the following years. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. A negative answer should be indicated by a minus sign.) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 NPV
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.
A company is considering expanding their production capabilities with a new machine that costs $50,000 and has a projected lifespan of 6 years. They estimate the increased production will provide a constant $9,000 per year of additional income. Money can earn 1.3% per year, compounded continuously. Should the company buy the machine? ]
Your firm receives an offer from the supplier who provides computer chips used to manufacture cell phones. Due to poor planning, the supplier has an excess amount of chips and is willing to sell $600,000 worth of chips for only $500,000. You already have two years' supply on hand. It would cost you $7,500 today to store the chips until your firm needs them in two years. What implied interest rate would you be earning if you purchased and store
You are the CFO of a drug company, and you must decide whether to invest 30 million dollars in R&D for a new drug. If you conduct the R&D, you believe that there is a 10% chance that the research will produce a useful drug. If the research is successful, investment in the drug will require an outlay of 1.2 billion dollars. The drug will likely generate annual profits of $200 million (starting a year after the outlay of 1.2 billion dollars) for 10 years until the patent expires. After that, it will generate a cash flow in perpetuity equal to $15 million. The discount rate is 6%. If you invest in R&D, you estimate that it will take 5 years to know whether the drug is successful or not. What is the NPV of the R&D investment?
A corporation is considering purchasing a machine that will save $150,000 per year before taxes. The cost of operating the machine (including maintenance) is $30,000 per year. The machine will be needed for five years, after which it will have a zero salvage value. MACRS depreciation will be used, assuming a three-year class life. The marginal income tax rate is 25%. If the firm wants 15% return on investment after taxes, how much can it afford to pay for this machine? Click the icon to view the MACRS depreciation schedules Click the icon to view the interest factors for discrete compounding when /- 15% per year. If the firm wants 15% return on investment after taxes, it can afford to pay thousand for this machine. (Round to one decimal place.)
Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $490,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $2.87 million. The cost of the machine will decline by $319,000 per year until it reaches $1.275 million, where it will remain. If your required return is 8 percent, should you purchase the machine? If so, when should you purchase it?

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