User Account

All Pages

What annual licensing fee would pfizer have to offer

Assignment Help Finance Basics
Reference no: EM13885559

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:

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.

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: EM13885559

Questions Cloud

Create an employee profile with the skills : The profile will list the skills and values needed by a company employee Create an employee profile with the skills and value he must possess
Assuming the labor force remained the same : Suppose the US. Unemployment rate at the start of 2010 had been 6% instead of 9.7%. How many more people would have been working (assuming the labor force remained the same)?
Send rocket instruction to tell it how many bullets to fire : You are the ground-control commander of a 2000 kg scientific rocket that is approaching Mars at a speed of 25,000 km/h . It needs to quickly slow to 15,000 km/h to begin a controlled descent to the surface.
Simple flu shot pricing : It’s that season again! You have engaged in a market study to categorize your patients’ willingness to pay for their flu shot into 8 equal sized groups: $40, $35, $30, $25, $20, $15, $10, $5). All of your costs are fixed except labor and materials, w..
What annual licensing fee would pfizer have to offer : 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?
Equilibrium with its respective ions : To determine the Ksp value of Hg2I2, a chemist obtained a solid sample of Hg2I2 in which some of the iodine is present as radioactive 131I. The count rate of the Hg2I2 sample is 5x10^11 counts per minute per mole of I. An excess amount of Hg2I2(s)..
Research shows that as the wages of married women rise : Research shows that as the wages of married women rise, more of them work and they work more hours per year. However, as the wages of their spouse increase, they reduce their labor force participation rate and hours worked (hint: this is like non-lab..
Protect the system from these procedural attacks : Summarise the procedures and tools hackers use for information gathering, target systems scanning, back-door opening and log-file clean-up. Alternatively, give an account of a hacker story from a technical perspective, including the tools employed..
Calculate quantity consumed after imposition of import fee : A country imports 5 billion tonnes of coal per year and domestically produces another 4.5 billion tonnes of coal per year. The world price of coal is $50 per tonne. Assuming linear schedules, economists estimate the price elasticity of domestic suppl..

Reviews

Write a Review

Finance Basics Questions & Answers

  Assume that springfields economy moves into a recession and

the widget industry in springfield is competitive with numerous buyers and sellers. consumers dont differentiate among

  Journal entries to record depreciation of truck

Journal entries to record depreciation where the life of the truck is not extend and Prepare the journal entries to record the cost of the upgrade

  Accrual income versus cash flow for a period

Thomas Book Sales, Inc., supplies textbooks to college and university bookstores. The books are shipped with a proviso that they must be paid for within 30 days but can be returned for a full refund credit within 90 days. In 2014, Thomas shippe..

  Describe diversification mean

Diversification is assumed to reduce risks. Describe diversification mean in the context of corporate finance, and how does it reduce risks in that context?

  What is the npv of accepting the system

Assume that the T-bill rate is 2.5 percent annually. What will be the annual net savings?

  A description of how the institution has been affected by

a description of how the institution has been affected by the financial crisis bailout mortgage markets. the

  What would you expect to happen to the price of their stock

xyz corp. has 1000 shares outstanding and retained earnings of 25000 dollars. what would you expect to happen to the

  Compute the beta of stock

The correlation between the returns on Ceramics Craftsman, Inc., and the returns on the S&P 500 is 0.675. The variance of the returns on Ceramics Craftsman, Inc., is 0.004225,

  Abc corp earned 700 per share last year the company plows

abc corp earned 7.00 per share last year. the company plows back 35 of its earnings into projects yielding 18.

  Calculate the compound annual rate of return

Using the growing perpetuity model and the growth rate you estimated in the previous question, solve for the shareholders' required rate of return that is implied through the 2007 stock price.

  Amortization for bonds accounting and interest expense on

amortization for bonds accounting and interest expense on bonds calculations.on january 1 2002 leary corporation issued

  Discussion-financial management terminologies

Discussion-Financial Management Terminologies

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