Please submit your write-up and excel workbook with your discounted cash flow (DCF) analysis

Business Assumptions:

• Assume that Drechtal receives approval of their first oncology drug, Trianoline.
• Equity is limited. Whatever equity Drechtal will need to purchase its headquarters could alternatively be invested in its core business, should it not purchase its headquarters.
• Every dollar Drechtal invests in its core business generates cash flow equal to 9.132% of the investment. At the same time, the investments value grows by 2% annually. (This means that the cash flow generated by new investment is also growing at 2%.)
• The depreciable life of all new pharmaceutical investments is 10 years.
• In Switzerland, both the corporate tax rate and the capital gains tax rate are 18% (both price appreciation and depreciation recapture).
• Drechtals CFO is confident that given its current capital structure (approximately 57% debt), its required return on equity (for its core business) is 22%.
• Drechtal can borrow in the Swiss bond market at 2% up to a 10-year maturity, with annual coupons on the bonds and no amortization. Should Drechtal invest in its core business, it will initially borrow at time 0 in the Swiss bond market so that its initial capital structure is unchanged. Drechtal will not adjust its debt holdings going forward.

Lease-Buy Assumptions:

• Office tenants in Basel sign 10-year NNN leases, with a 5% step-up in rent in Year 5.
• A single-tenant A-quality office building with a long lease typically incurs capital expenditures equal to roughly 16% of NOI.
• The new building under construction will be of much greater quality than neighboring buildings, and will therefore likely attract tenants with rents roughly 20% above the current "prime'' level for the neighborhood.
• Total expenses (operating + vacancy/credit) of a new Swiss office building are 34% of gross rent if the building is professionally managed. Expenses incurred by corporate owners are typically 10% higher. This can be calculated not as 44% of the rent, but rather (1 + 10%)*(34%*gross rent).
• Property sales brokers charge a 3% commission upon sale.
• Swiss commercial property valuation in Basel is approximately 80% structure and 20% land. The depreciable life of Swiss property is 20 years. You may not depreciate land in Switzerland.