Answer to Question #259315 in Other for Kiki

Question

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:

Ø Determine the viability of this project using the following techniques (the firm has a cost of capital of 20%):

i) ii) iii) iv)

Net Present Value, Profitability Index, Discounted Payback Payback period

Answer 1

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