Question: You are hired as a consultant for a client considering the following 4-year BIOTECH project X: Initial Capital Spending (paid at T=0): an asset worth

You are hired as a consultant for a client considering the following 4-year BIOTECH project X:


Initial Capital Spending (paid at T=0): an asset worth $100 mil

The asset will have no book value and will be completely worthless at the end of project's life

Initial investment in Net Working Capital (paid at T=0): $8 million. NWC levels are supposed to increase by $1 mil per year.

The project will generate Operating Cash Flows OCF=$30 mil per year, for every year from Year 1 to Year 4.

The cost of capital for the project is 16%.


What is the NPV of such a project? Should your client accept it? Why or why not?

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