Gene Research, Inc., just finished a four-year program of R&D and clinical trials. It expects a quick

Question:

Gene Research, Inc., just finished a four-year program of R&D and clinical trials. It expects a quick approval from the Food and Drug Administration. If Gene markets the product on its own, the company will require $30 million immediately (n = 0) to build a new manufacturing facility, and it is expected to have a 10-year product life. The R&D expenditure in the previous years and the anticipated revenues that the company can generate over the next 10 years are summarized in Table P5.28.

Merck, a large drug company, is interested in purchasing the R&D project and the right to commercialize the product from Gene Research, Inc.; it wants to do so immediately (n = 0). What would be a starting negotiating price for the project from Merck? Assume that Gene's MARR = 20%.

MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...