Detailed explanations and solutions

Marko Pharma Ltd. (MPL) is a biotech company that is involved in research and commercialization of products to treat a variety of human diseases and to boost human health. The company issued an IPO in the current year, and is traded on the Toronto Stock Exchange under the ticker MPL. The company also has bonds issued in the public market, which are currently yielding 8%. Given the recent market volatility and global economic conditions, the share price of MPL has been under significant pressure. During its first year on the TSX, MPL's stock price has performed as follows 7.00 6.50 6.00 5.50 8 5.00 4.50 4.00 3.50 3.00 2.50 2.00 The stock price peaked at around $6.50 per share, but has steadily declined since the company announced second-quarter earnings that missed analysts' expectations. Third-quarter earnings met analysts' expecta- tions; however, this did not prove to be a catalyst for share price appreciation. Shareholders were upset with the weak IPO issuing and are again becoming restless with the slumping share price. Shareholders are looking for management to generate shareholder wealth and there have beern rumblings that a shareholder activist group is looking to change top management at the upcoming annual meeting. The low share price has also led to speculation that MPL will be taken over by a larger biotech company through a hostile bid. The CFO is now preparing the annual financial statements for the year ended December 31, 2017, and considering the following transactions during the most recent quarter MPL recently attracted two new researchers to the company. The researchers were paid an upfront igning bonus of $350,000 each. The researchers come from a larger company and have a proven track record of developing profitable products. For example, the researchers recently developed (in their previous employment) a highly profitable testing procedure that detects early stages of prostate cancer. The procedure is estimated to generate in excess of $5 million in discounted cash flows. The researchers must work for MPL for a minimum of three years, or else the bonus must be repaid MPL purchased a patented pharmaceutical drug for $3.4 million from a smaller company that does not have the resources to commercialize the product. The product treats kidney disease and is named BlockXs. Generally, drug patents last for 20 years. However, the patent was applied for three years ago when clinical trials began