Pharma-Corp is considering investing in a new project that will generate revenues of $9 million in...

Pharma-Corp is considering investing in a new project that will generate revenues of $9 million in its first year of operation and these revenues will grow at the rate of 3% per year thereafter. The project also entails R&D expenditures of $3 million in the first year of operation and these expenditures are expected to grow at the rate of 10% per year. The project would be pursued only as long as it yields a positive net cash flow. That is, it would be terminated when R&D expenditures are larger than the revenues. If the company decides to undertake the project now, it will become operational next year. The interest rate is 6% (Assume this is the effective annual rate.) What is the net present value of the project if the firm must invest $15 million upfront (today)? Hint: First find for how many periods this project will be pursued.

Select one:
a. $35. 078 million
b. -$5.394 million
c. - $15.000 million
d. $15.035 million
e. $18.386 million

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Expert Solution

Rahul Sunny answered 1 year ago

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