AstraZeneca is developing a vaccine to combat COVID19. It expects the first cash inflow from this...

AstraZeneca is developing a vaccine to combat COVID19. It expects the first cash inflow from this project to be $525,000 in 6 years’ time and then an inflow will occur every half a year for the next five years. The success of this project results in an expectation of the cash inflows growing at a rate of 11.32% p.a. compounded annually. After the patent on this vaccination expires, the long-term growth rate will drop to zero and the cash inflows will cease. If AstraZeneca requires a return of 16.48% p.a. compounded annually, what is the maximum amount of money they could put into developing this vaccine for it to be worthwhile?

Solutions

Expert Solution

Semi annual rate equivalent to growth rate of 13.42% compounded annually =

(1+13.42%)^(1/2)-1= 6.498826%

Semi annual rate equivalent to rate of return of 16.48% compounded annually =

(1+16.48%)^(1/2)-1= 7.925901%

Cash inflows as stated constitute a growing annuity due of $525,000, semi annual, for 5 years, starting 6 years from now.

Maximum amount that can be invested now is the PV of this annuity, further discounted for 6 years = $ 1,981,320.03

Calculation as follows:

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

A fund manager expects to receive a cash inflow of R50,000,000 in three months. The manager...

A fund manager expects to receive a cash inflow of R50,000,000 in three months. The manager wishes to use futures contracts to take a R30,000,000 synthetic position in shares and a R20,000,000 in bonds today. The share would have a beta of 1.05 and the bond a modified duration of 8.25. A share index futures contract with a beta of 0.80 is priced at R300,000 and a bond futures contract with a modified duration of 7.50 is priced at R200,000....

Where did most of their cash inflow come from? Where did most of their Cash Outflow...

Where did most of their cash inflow come from? Where did most of their Cash Outflow Go? Do You think these inflows and outflows indikcated good or bad news? FINANCING ACTIVITIES: Excess tax benefits from stock-based compensation $829 Proceeds from long-term debt and other $621 Repayments of long-term debt and other $(354) Principal repayments of capital lease obligations $(3,860) Principal repayments of finance lease obligations $(147) Net cash provided by (used in) financing activities $(2,911) Foreign currency effect on cash...

A firm expects cash flows from an initial investment of 1 000 000$. The expected cash...

A firm expects cash flows from an initial investment of 1 000 000$. The expected cash flows are as follows: 1.year: 600 000$ , 2.year: 400 000$, 3.year: 350 000$, 4.year: 300 000$ If the cost of capital is 16%, what is approximate IRR of this investment project? Do you accept this investment project?

Assume that it is now Jan. 2018. AZDT Inc. (US) expects to receive cash dividends from...

Assume that it is now Jan. 2018. AZDT Inc. (US) expects to receive cash dividends from a joint venture in India over the next five years. The first dividend of Rs 2 million will be paid in Dec. 2018. The dividend is then expected to grow at an annual rate of 10% over the following four years. Current exchange rate (Rs/$) is 45 (65.25) and AZDT’s average weighted cost of capital is 10%. a. Compute the dollar present value of...

The Purple Lion Beverage Company expects the following cash flows from its manufacuring plant in Palau...

The Purple Lion Beverage Company expects the following cash flows from its manufacuring plant in Palau over the next 6 years: Year 1= $100,000 Year 2= $20000 Year 3= $330,000 Year 4= $450,000 Year 5= $750,000 Year 6= $375,000 The CFO of the company believes that an appropriate annual interest rate on this investment is 4%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar? a) $450,000 b) $2025000 c) $1705489 d)...

On the first business day of 20x0, Whinny Corporation purchased for cash a new truck from...

On the first business day of 20x0, Whinny Corporation purchased for cash a new truck from its local dealer. The truck was a heavy-duty type and records indicated it should have a useful life of 10 years and a residual value of $10,000. The vehicle cost $120,000. The straight-line depreciation method is used. During the first week of January 20x4, the truck was repaired and rebuilt at a total cost of $18,000: $16,300 for additions and $1,700 for ordinary repair....

On January 1, 2019, Fleming Company borrowed $50,000 cash from First American Bank by issuing a...

On January 1, 2019, Fleming Company borrowed $50,000 cash from First American Bank by issuing a one year 6% note. The principal and interest will be repaid by making one annual payment on December 31, 2019. The amount of the payment to the bank on December 31, 2019 for the principal and interest is: Group of answer choices $50,000 $80,000 $53,000 $50,300 2. Gem's Jewelry made a cash sale of merchandise amounting to $2,500 to a customer in Tyler, Texas...

On January 1, 2018, Brown Co. borrowed cash from First Bank by issuing a $62,500 face...

On January 1, 2018, Brown Co. borrowed cash from First Bank by issuing a $62,500 face value, four-year term note that had an 9 percent annual interest rate. The note is to be repaid by making annual cash payments of $19,292 that include both interest and principal on December 31 of each year. Brown used the proceeds from the loan to purchase land that generated rental revenues of $30,625 cash per year. Prepare an income statement, a balance sheet, and...

On January 1, 2018, Brown Co. borrowed cash from First Bank by issuing a $42,000 face...

On January 1, 2018, Brown Co. borrowed cash from First Bank by issuing a $42,000 face value, four-year term note that had an 6 percent annual interest rate. The note is to be repaid by making annual cash payments of $12,121 that include both interest and principal on December 31 of each year. Brown used the proceeds from the loan to purchase land that generated rental revenues of $22,260 cash per year. Prepare an income statement, a balance sheet, and...

On January 1, 2018, Brown Co. borrowed cash from First Bank by issuing a $100,000 face...

On January 1, 2018, Brown Co. borrowed cash from First Bank by issuing a $100,000 face value, four-year term note that had an 8 percent annual interest rate. The note is to be repaid by making annual cash payments of $30,192 that include both interest and principal on December 31 of each year. Brown used the proceeds from the loan to purchase land that generated rental revenues of $52,000 cash per year. Organize the information in accounts under an accounting...

Subjects