Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

13 25 points AAI Pharmaceuticals, a small drug company, just completed development of a new antibiotic medication. The company believes they can change 200 per

image text in transcribed
13 25 points AAI Pharmaceuticals, a small drug company, just completed development of a new antibiotic medication. The company believes they can change 200 per dose for the next years and that it will cost $50 per dose to produce. Manufacturing equipment for the medication costs $5 million and will be depreciated in a straight line to zero book value over the following 5 years. The equipment will be installed in a facility AAI paid $4 million for 6 years ago. To support manufacturing the company estimates they will need $750,000 in raw materials inventory for the life of the project. They also believe they can sell the equipment for $800,000 at the end of the project. Annual fixed costs for the project are estimated to be $1.5 million. The tax rate is 20% and the cost of capital is 10% 5 points per part! A Create the "Statement of Cash Flows for this project. B. What is the present value of the cash flows that we know (the CF from the Statement of CF)? C. What must be the annual Net Income + Depreciation (Operating Cash Flow) for this project to break even (economically speaking)? D. What is the economic break even number of doses for AAI? E. BRIEFLY explain how a company might use your answer to part (d) (1-2 sentences MAXIMUM). 13 25 points AAI Pharmaceuticals, a small drug company, just completed development of a new antibiotic medication. The company believes they can change 200 per dose for the next years and that it will cost $50 per dose to produce. Manufacturing equipment for the medication costs $5 million and will be depreciated in a straight line to zero book value over the following 5 years. The equipment will be installed in a facility AAI paid $4 million for 6 years ago. To support manufacturing the company estimates they will need $750,000 in raw materials inventory for the life of the project. They also believe they can sell the equipment for $800,000 at the end of the project. Annual fixed costs for the project are estimated to be $1.5 million. The tax rate is 20% and the cost of capital is 10% 5 points per part! A Create the "Statement of Cash Flows for this project. B. What is the present value of the cash flows that we know (the CF from the Statement of CF)? C. What must be the annual Net Income + Depreciation (Operating Cash Flow) for this project to break even (economically speaking)? D. What is the economic break even number of doses for AAI? E. BRIEFLY explain how a company might use your answer to part (d) (1-2 sentences MAXIMUM)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Four Corners Of Financial Accounting

Authors: Shaho Heidari Gandoman

1st Edition

1952751950, 978-1952751950

More Books

Students also viewed these Accounting questions