question archive Tobinco Pharmacy is considering a new malaria drug that has a total life span of 20 years, seven (7) of which will be used in its pre-trial and testing and the remaining thirteen (13) will be the revenue-generating years
Tobinco Pharmacy is considering a new malaria drug that has a total life span of 20 years, seven (7) of which will be used in its pre-trial and testing and the remaining thirteen (13) will be the revenue-generating years
Subject:BusinessPrice: Bought3
Tobinco Pharmacy is considering a new malaria drug that has a total life span of 20 years, seven (7) of which will
be used in its pre-trial and testing and the remaining thirteen (13) will be the revenue-generating years. Phase I will
take two years and cost $ 35 million. Phase II will take another two years and cost $40.4 million. Phase III will take
three years and cost $500 million. All costs for the individual phases will be made at the beginning of each phase. The
product will then be launched at the beginning of the 8th year for another $405 million. Cash inflows of $843 million
per year are expected.
Since they do not have the expertise internally, you have been consulted to help management in arriving at an
appropriate decision. Your terms of reference are to:
? Determine the viability of this project using the following techniques (the firm has a cost of capital of 20%):
i) Net Present Value, (the firm has a cost of capital of 20%)
ii) Profitability Index,
iii) Discounted Payback ((the firm has a cost of capital of 20%)
iv) Payback period
determine the level of sensitivity of the project to changes in cost, cash inflows and cost of capital .In essence the firm want to know how much adverse effect changes in cost will affect the viability of the project
