Novartis International AG, a global healthcare company based in Switzerland, is considering producing either a generic multivitamin or a specific blend of vitamins A, C, and D. Novartis expects both products to provide benefits over a 12-year period, and each has a required (initial) investment of CHf520,000

(CHf stands for Swiss Franc). The company uses a 6.35% cost of capital. Management has constructed the following table of estimated annual cash inflows for pessimistic, most likely and optimistic results:

a. Determine the range of annual cash inflows for each of the two products.

b. Construct a table similar to this one for the NPVs associated with each outcome for both products.

c. Find the range of NPVs, and subjectively compare the risks associated with these products.

d. Which product do you recommend? Why?

Transcribed Image Text:

Initial investment (CF) Outcome Pessimistic Most likely Optimistic Generic multivitamin -CHf520,000 Blend of A, C, and D -CHf520,000 Annual cash inflows (CF) 50 75 100 40 75 120