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Problem:
Neo Pharmaceuticals is a start-up pharmaceutical company focused on the development and commercialization of non-steroidal anti-inflammatory drugs world-wide. The company recently obtained FDA approval for one of its new drugs, vacuus poena and must now decide between a product launch in Europe or the United States. Since the company has spent the majority of its funding on the development of vacuus poena, it can only afford to market the new product in one geographic region. The company estimates that it will cost $250 million to launch the product in the U.S. and $50 million to establish a smaller presence in Europe. Management's required payback period for this type of investment is 3.5 years. The Vice President of Marketing and Sales has estimated the future cash inflows by region in the table below.
Projected Cash Flow By Region
For R Vacuus Poena ($ millions)
Region
IRR
Launch Costs
2011
2012
2013
2014
2015
US
28%
$250
$ 35.40
$80.76
$129.80
$160.92
$176.15
Europe
37%
$50
$17.70
$22.28
$24.65
$31.03
$32.04
Cost of Capital =
NPVUS=
NPVEU=
Additional Information:
This question is basically belongs to the Finance as well as it discusses about calculating NPV, IRR, Payback period, etc for the firm.
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