Question: Consider a rm that only has a patent as its assets If not developed any further, the value of the patent will only be $19

Consider a ﬁrm that only has a patent as its assets If not developed any further, the value of the patent will only be $19 million at the end of the year. The ﬁrm has long-term debt of $28 million, which is due at the end of the year. However, the ﬁrm can develop its patent with an upfront cost of $24.5 million. The developed patent will have a value of $5025 million at the end of the year. Suppose the risk-free interest rate is 12%, assume all cash ﬂows are risk-ﬂee, and assume there are no taxes. a. What are the ﬁrm's debt and equity values today if it decides not to develop its patent any further (1 mark)? h. Let us assume that the ﬁrm decides to develop its patent further. What is the NPV of developing the patent (2 marks)?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a If the firm decides not to develop its patent any further the value of the patent at the end of th... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Consider a firm that only has a patent as its asset. If not developed any further, the value of the patent will only be $19 million at the end of the year. The firm has long-term debt of $28 million,...

Case Swimmers Headphones1 Finally! Its the end of 2019 and you are sitting at your new desk in a plush office in north Bogota, with a delicious cup of Colombian coffee. You think about all it took to...

Last Sale Net Bid Ask Open Int Puts Last Sale Net bid Ask Vol Open Int 16Aug 155.00(1619H155-E) 6.45 0.75 6.95 7.25 9 16Aug 155.00(1619T155-E) 1.18 (0.75) 1.17 1.25 61 4505 16Aug 166.00(1619H160-E)...

QUESTION 11 5 points Save Answer Consider a rm that only has a patent as its assets If not developed any further, the value of the patent will only be $19 million at the end of the year. The rm has...

QUESTION 11 5 points Save Answer Consider a firm that only has a patent as its asset. If not developed any further, the value of the patent will only be $19 million at the end of the year. The firm...

Please see attached Document and give answers for all. Thanks Qz 9 Firm A uses straight-line depreciation. Firm B uses MACRS depreciation. Both firms bought $75,000 worth of equipment last year that...

5 points Save Answer QUESTION 11 Consider a firm that only has a patent as its asset. If not developed any further, the value of the patent will only be $19 million at the end of the year. The firm...

Consider a firm that only has a patent as its asset. If not developed any further, the value of the patent will only be $72 million at the end of the year. The firm has long-term debt of $85 million,...

On January 1, Renewable Energy issues bonds that have a $34,000 par value, mature in ten years, and pay 17% interest semiannually on June 30 and December 31. 1. Prepare the journal entry for issuance...

Rose is considering a project which requires new equipment at a cost of $170,000. The equipment has a 3-year tax life and will be depreciated by the MACRS method. When the project closes down at the...

Which of the following is NOT a recommended safety consideration when operating the milling station? Operate the milling machine without prior training if you are confident in your abilities. Ensure...

A golf course sprinkler system discharges water from a horizontal pipe at the rate of 7200 cm'/s. At one point in the pipe, where the radius is 4.00 cm, the water's absolute pressure is 240 X 10' Pa....

Suppose you take a plastic ring of radius a and glue charge on it, so that the line charge density is 0| sin(/2)|. Then you spin the loop about its axis at an angular velocity w. Find the (exact)...

After a long walk in the 8C outdoors, a person wearing glasses enters a room at 25C and 40 percent relative humidity. Determine whether the glasses will become fogged.

Condensed financial data of Ziebert Company are shown below. Additional information:1. New plant assets costing $146,000 were purchased for cash during the year.2. Investments were sold at cost.3....

Book vs. Tax (MACRS Depreciation) Annunzio Enterprises purchased a delivery truck on January 1, 2010, at a cost of $41,000. The truck has a useful life of 7 years with an estimated salvage value of...

All of the following individuals are using risk avoldance to reduce risk in their lives EXCEPT: ( Search Chanter 1 ) a . Jan, who will not to skydiving b . Fred, who will not invest in the stock...

Bea Jones (age 32) moved from Texas to Florida in December 2011. She lives at 654 Ocean Way, Gulfport, FL 33707. Bea's Social Security number is 466-78-7359 and she is single. Her earnings and income...

Cypress Corporation has regular taxable income of $170,000 (assume annual gross receipts are greater than $5 million) and regular tax liability of $49,550 for 2012. The corporation also has tax...

Cedar Corporation has an S corporation election in effect. During the 2012 calendar tax year, the corporation had ordinary taxable income of $200,000, and on January 15, 2012, the corporation paid...

6. Who are the stakeholders in your organisation and what is their order of priority - and what is the justification for this order?

4. Think of an example when you put yourself before your organisation and why- and vice versa.

5. Can you think of a decision you have made where you got the balance right between you and the organisation?