PharmCo is a C corporation incorporated in New Jersey. PharmCo owns the patent to EZCalm, a sedative designed to calm the nerves of Over-Zealous Suburban Little League Parents ("OZSLLP"). PharmCo annually earns $10 million in net income, but the profits will dry up after four years when the patent for EZCalm expires.

?The Intangibles were purchased several years ago.?

Various financial experts have told PharmCo that its internal rate of return ranges from 6% to 8%.

You are negotiating the purchase of PharmCo. How much are the PharmCo shares worth 1.Pursuant to a market methodology?

2.Pursuant to an asset based methodology?

3.Pursuant to an income methodology?

GUIDELINE COMPANIES

?Puck Off - A public company that produces a pharmaceutical that calms the nerves of hockey parents. Puck Off earns $7 million of net income annually and recently sold for $210 million.?Red Card - A private company that distributes a pharmaceutical that calms the nerves of soccer parents. Red Card earns $6 million of net income annually and recently sold for $150 million.?

As with the subject company, the guideline companies will lose their exclusive rights to their product after four years.

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PharmCo's Balance Sheet Cash $20 million Notes Payable $10 million Accs Rcvble 5 million Intangibles 11 million Less: acc amrt (2.2 mill) 33.8 million Retained Earnings 12 million Supplies 5 million Contributed Capital 16.8 million Total Assets $38.8 million Liabilities & SE $38.8 million PharmCo's Balance Sheet Cash $20 million Notes Payable $10 million Accs Rcvble 5 million Intangibles 11 million Less: acc amrt (2.2 mill) 33.8 million Retained Earnings 12 million Supplies 5 million Contributed Capital 16.8 million Total Assets $38.8 million Liabilities & SE $38.8 million