A Chinese company called China National Pharmaceutical Group (Sinopharm) has a patent on a COVID-19 vaccine called Sinopharm BIBP, which has received full approval from 4 countries and emergency use in 106 countries. Basing on the demand and the expected price of the drug, the expected present value of future cashflows is estimated at $4.595 billion. In order to develop the vaccine, the firm had to incur a cost of $3.786 billion, assuming the vaccine is introduced today. The firm is expected to enjoy patent protection for a period of 15 years. The variance of similar publicly trade firms is 0.354 and the 15-year treasury bill is yielding 5.5%. Sinopharm has also licenced technology to manufacture vaccines to other companies in the industry therefore the firm expect to receive $45 million after tax cashflows from licence fees for a period of 12 years. The licensing firms are accessing debt in the financial markets at pre-tax cost of 5%. Sinopharm is still carrying out research and development in order to develop new vaccines that can provide protection against the mutations. In the most recent year, the firm spent $150 million and this expenditure is expected to increase at a rate of 20% per year for the next 10 years and 5% thereafter. The patents derived from this research are expected to return $1.30 for every dollar invested for the 10 years and break even thereafter. This project carried a cost of capital of 12%.

Required
i. Determine the value of the firm.

Answer rating: 100% (QA)

To determine the value of the firm we can use the discounted cash flow DCF method which involves est... View the full answer