Due to the current circumstances and due to the outbreak of the virus - Covid 19- , A COMPANY called Pfizer was able to develop a vaccine against this epidemic. But the company's planning team decided that there would be a test period for this drug that would extend for one year. The team expects that the success rate of this vaccine in the market will reach 75%, at a cost of up to $ 1300000, in the first phase. If the vaccine succeeds, the company will start mass-producing to the market at a cost of up to $ 1,900,000, extending up to 5 years. Use a discount rate of 12%.

Investment

Year 1

Years 2-6

Revenues

$16,000000

Variable Costs

(5,400000)

Fixed Costs

(3,500000)

Depreciation

(700000)

Pretax profit

Tax (30%)

Net Profit

Cash Flow

-$1900000

A.Find the followings:

1.NPV for this project from year 1 till year 5

2.Expected payoff for this project

3.NPV at time 0 based on the expected payoff considering the cost in test phase.

4.Should they test?

B.Suppose that the revenue from this project dropped to $9000000, find the followings:

1.NPV for this project from year 1 till year 5

2.Expected payoff for this project

3.NPV at time 0 based on the expected payoff considering the cost in test phase.

Investment

Year 1

Years 2-6

Revenues

$9,000000

Variable Costs

(4,200000)

Fixed Costs

(3,500000)

Depreciation

(600000)

Pretax profit

Tax (30%)

Net Profit

Cash Flow

-$1900000

C.Do the following analysis

1.Sensitivity analysis for both projects, and explain the results

2.Calculate the operation cash flow (OCF) using PMT function

3.Work backwards from OCF to find break-even revenue

4.Assume that the price per dose for this drug is offered by $80, find the break-even price