Round Lake Generics (RLG) scans the pharmaceutical market for drugs that are soon to lose patent...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Round Lake Generics (RLG) scans the pharmaceutical market for drugs that are soon to lose patent protection. It analyzes the potential market for generic versions of these drugs and then determines whether to begin developing a generic manufacturing process. Recently, RLG observed that Stu-Good™, a drug that improves understanding of cost accounting material, will lose patent protection on January 1 of 20X9. RLG analysts developed the following information about generic Stu-Good™. . RLG could begin selling generic Stu-Good™ on January 1 of 20X9 . The expected risk-free rate over the next decade is 5% and RLG 's weighted average cost of corporate capital is 10% • New generic drugs have an average standard deviation of returns of 75% across all producers. • As of January 1, 20X9, the present value of cash inflows due to StuGood™ sales is estimated to be $120 million. Once RLG decides to produce and market generic Stu-Good™, it will take the company 18 months to install the necessary equipment and obtain the necessary approvals from the Food & Drug Administration. These costs, together with the costs of producing launch quantities of generic Stu-Good™, have a present value of $140 million as of the decision to launch the product. What is the maximum estimated present value, as of January 1, 20X3, of the investment necessary to develop the production process for generic Stu-Good™ that would lead RLG to decide to invest in development of generic Stu-Good™? Round Lake Generics (RLG) scans the pharmaceutical market for drugs that are soon to lose patent protection. It analyzes the potential market for generic versions of these drugs and then determines whether to begin developing a generic manufacturing process. Recently, RLG observed that Stu-Good™, a drug that improves understanding of cost accounting material, will lose patent protection on January 1 of 20X9. RLG analysts developed the following information about generic Stu-Good™. . RLG could begin selling generic Stu-Good™ on January 1 of 20X9 . The expected risk-free rate over the next decade is 5% and RLG 's weighted average cost of corporate capital is 10% • New generic drugs have an average standard deviation of returns of 75% across all producers. • As of January 1, 20X9, the present value of cash inflows due to StuGood™ sales is estimated to be $120 million. Once RLG decides to produce and market generic Stu-Good™, it will take the company 18 months to install the necessary equipment and obtain the necessary approvals from the Food & Drug Administration. These costs, together with the costs of producing launch quantities of generic Stu-Good™, have a present value of $140 million as of the decision to launch the product. What is the maximum estimated present value, as of January 1, 20X3, of the investment necessary to develop the production process for generic Stu-Good™ that would lead RLG to decide to invest in development of generic Stu-Good™?
Expert Answer:
Answer rating: 100% (QA)
To determine the maximum estimated present value of the investment necessary to develop the producti... View the full answer
Related Book For
Intermediate Accounting
ISBN: 9780136946694
3rd Edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Posted Date:
Students also viewed these accounting questions
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
List three specific parts of the Case Guide, Objectives and Strategy Section (See below) that you had the most difficulty understanding. Describe your current understanding of these parts. Provide...
-
Bailey Corporation?s financial statements (dollars and shares are in millions) are provided here. a. What was net working capital for 2007 and 2008? b. What was Bailey?s 2008 free cash flow? c....
-
A fair coin is tossed four times. What is the probability that the number of heads appearing on the first two tosses is equal to the number of heads appearing on the second two tosses?
-
What is the name for a diagram of who eats whom in a community?
-
The unadjusted trial balance of Alston Air Purification System at December 31, 2016, and the data needed for the adjustments follow. Adjustment data at December 31 follow: a. On December 15, Alston...
-
What if Scenrio May stays as planned but that your supplier tells you that you will not receive any shipments for the rest of the year for the following games: boggle, telestrations, ticket to ride,...
-
Andrew Jackson's actions in the Seminole War were universally celebrated in Congress and throughout the nation eventually resulted in Spain relinquishing Florida ended in an embarassing series of...
-
Describe and explain the key principles of stakeholder management theory. What is the role of stakeholder management theory in contemporary business?
-
10 48 30 "Farmer in Chief" Crossword Puzzle 40 26 20 35 39 38
-
Suppose today is October 23rd 2020. You want to buy a treasury strip (treasury zero coupon bond) that matures on October 23rd 2032. You check the ask price and see that it is selling for $87.50....
-
These team members use all inventory systems extensively, will need "super-user" privileges and will need to understand all system functions listed below. This includes the Receiving and Distribution...
-
At the instant of takeoff, a 53 kg diver's angular momentum (H) about her transverse axis is 15 kgm2/s. Her radius of gyration (rg) about the transverse axis is 1.1 m at this instant. During the...
-
he CIR may NOT inquire into the bank deposits of a taxpayer, except * 2 points A. When the taxpayer files a fraudulent return; B. When the taxpayer offers to compromise the assessed tax based on...
-
From the ledger balances below, prepare a trial balance for Oriole Company at June 30, 2022. All account balances are normal. Accounts Payable $1.500 Cash 5,620 17,720 Common Stock Dividends...
-
The following information is for Montreal Gloves Inc. for the year 2020: Manufacturing costs Number of gloves manufactured Beginning inventory $ 3,016,700 311,000 pairs 0 pairs Sales in 2020 were...
-
On January 1, 2022, Stark Incorporated issued $1,500,000 par value, 5%, 7-year bonds (i.e., there were 1,500 of $1,000 par value bonds in the issue). Interest is payable semiannually each January 1...
-
Company, a U.S. corporate filer, provides you with the following information. The company does not report any book tax differences and is subject to a 21% income tax rate. Compute the NOL...
-
Cosmo Computer Consultants (CCC) signed a contract in 2022 to develop a computer network system for Platinum Entertainment. Cosmo uses the percentage-of completion method and determines its measure...
-
Use Minitab to obtain the results of Tukey's test for the shear bond strength data from Example 1 in Section 13.1. Approach The steps for obtaining the results of Tukey's test using Minitab, Excel,...
-
Another scientist examines how the presence of a nonnative bird species, the starling, affects other species of birds. Is this a population-level study, a community-level study, or an ecosystem-level...
-
What is the function of the placenta?
Study smarter with the SolutionInn App