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    LiveForever Biotechnology Corp: Net Present Value calculations

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    LiveForever Biotechnology Corporation (LFBC) has a new potential drug developed by their research group for which they are planning the marketing. The plan has three steps: 1) development (gaining approvals and designing processes and packaging), 2) marketing as a proprietary drug (no direct competitors) and 3) marketing as a generic drug. Step 1 is envisioned as happening in 2010, step 2 in years 2011-2015, and step 3 as years 2016 to 2018. The tables below lists the relevant costs and sales forecast. Depreciation will be computed as straight line from 2011 through 2015.
    As an alternative, they could sell the rights to the product to a major pharmaceutical company. Based on this information, what would be the minimum price for which they sell considering past investments and future gains (e.g. the net present value today)?

    Present value (in 2010) of past research costs $100 million
    Development (approvals and processes) $10 million (assume that this can not be included in depreciation)
    COGS (proprietary period) 15% of revenues
    COGS (generic period) 5% of revenues
    Machinery Investment $2 million in 2010
    Machinery Salvage Value $0.0
    Inventory 10% of revenues
    Accounts receivable 15% of revenues
    Accounts Payable 12% of revenues
    Cost of capital 8%
    Tax Rate 30%

    2010 2011 2012 2013 2014 2015 2016 2017 2018
    Sales Revenue Forecast $0.00 $50.00 $75.00 $125.00 $400.00 $400.00 $150.00 $100.00 $50.00
    SG&A $8.00 $5.00 $5.00 $3.00 $1.00 $1.00 $1.00 $1.00

    © BrainMass Inc. brainmass.com October 10, 2019, 12:16 am ad1c9bdddf
    https://brainmass.com/business/capital-budgeting/liveforever-biotechnology-corp-net-present-value-calculations-285240

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    Solution Summary

    The expert examines LiveForever Biotechnology Corporation for the new present value calculations.

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