7. Licensing versus foreign direct investment (intermediate). The Danish biotech multinational Novo is considering alternative modes of entry into the Indonesian market. It could (1) license the Indonesian state-owned pharmaceutical agency known as Farma and receive royalties at 5 percent of sales revenue or (2) start a greenfield operation in Bandung and repatriate profits as they are earned. In either case the proposed venture will generate sales revenue of rupiah (IDR)

25 billion and earnings after tax of IDR 2.5 billion. Sales revenues are as volatile as 10-year Danish treasuries yielding 5 percent while earnings after tax are as volatile as the Copenhagen stock market index yielding 10 percent. Explain how you would formulate a comparison of either mode of entry. What additional information, if any, would be required to complete your financial analysis?