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PoxDeliver; Systems is an ReD venture specializing in the developenent and testing of new drug delivery technologies. The markel for altemative dug delivery systems grew rapidy during the 1990 s. Driving factors behind this gowith include efforts to roduce drug side effects through site-specific detivery, the neod to maititain the activity of rew biophamaceutical compounds, and the extension of drug patent life; Improved drug delivery methods are expected to reduce the nember of surgical interventions and the length of hospital stays, and improve patient compliance in taking prescribed drugs. A large world market for biopharmaceuticals (including peptide, protein, RNA, and DNA drugs) exists today. Sales of polymer-based drug deivery systems continge to grow rapidy. Pumonary delivery systems tepresent an important segment of the drug dalivery market. RoDelivery Systems believes it can compete effectively in both the polymer-based and the pulmonary drug delivery areas. The venture's delivery fechnology is expected to uthize hydrophobic ion paingn and supercritical carbon dioxide precipitation to incopporate water-soluble drug molecules into biodegradable controfied. release microspheres: The resuling microspheses will take the form of dry powders and will contain drug molecules small enough to allow for intravenous, intranasal, or pulmonary delivery. It is anticipated that this technology will be incorporated into products for controlled release applications inciuding treatment of cancer, infectious diseases, and gene therapy. RoxDelivery Systems, through an agrement with its pharmaceutical parent, a major drug compary, will initially operate as an independent corporation but wili be. merged into the parent at the end of its second year. At that time, PoxDelivery Systems entrepreneurial team will be puid a lump sum of $3,00,000 as the ferminal value for the venture. Followng are limited firancial statement proyections for the next two years for Rubelivery Systems A. Constnuct the venture s income statements for Years 1 and 2 RoDelivery Systems believes it ean compete elfectively in both the polymer-based and the puimonary drug delivery areas. The ventire's delivery technology is expected to utilize hydrophobic ion paining and supcreritical carbon doxide precipitation fo incorporate water-schuble drug molecules into biodegradzble controller release microspheres. The resulting microsphores will take the form of dry powders and will contain drug molecules small enough to allow for intravenous, intranzsal or pulmonary delivery. It is anticipated that thes technology wil be incorporated into products for controlied release applicaticns including treatment of cancer, inlactious disensos, and gene therapy. PxDolivery Systems, through an agreement whth its pharmaceutical parent, a major dnug compary, will initially operate as an indipendent corporation but wifl be merged into the parent at the end of its second yeaf. At that time, PxDelivery Systems' entrepreneurial team will be paid a lump sum of $3,00,000 as 1 he ternini value for the verture. Following are limited finncial statement projections for the next two years for PoDelivery Systems: A. Construct the venture's income statements for Years 1 and 2 . 8. Construct the venture's balance sheets at statup and at the end of Years 1 and 2 . Put indial fixed assef investments in Yoar 0 and intial wniking caprtal investments in Year 1 Assume the unitial $70,000 is equity financed C. Construct the pseudo dividend method equity valuation cash flow including the $3,000,000 temminal payment D. Using a 25% discount rate for the first two yeas and a $3,000,000 temmina value, what is the value of the venture at its faunch