4.Genzyme is a local biotechnology firm that invests heavily in research and development.

(a) Currently, Genzyme re-invests all of its cashflows to help fund new R&D. Investors expect Genzyme to produce zero net cashflows for the next 5 years. In the 6th year, Genzyme is expected to have cashflows of $100 million, which is then expected to grow at a constant rate of 8% forever. If investors require a 13% rate of return, what is the current value of Genzyme? (Assume all cashflows occur at the end of the year.)

(b) Genzyme announces that it has just discovered a new drug, Heartgo, to treat heart disease. The firm has already spent $40 million developing Heartgo, and will have to spend an additional $10 million immediately to prepare the drug for sale. Heartgo is expected to generate cashflows of $30 million for 10 years, with the first cashflow received in one year. What is the new market value of Genzymeafter the announcement?