Question Kinapharma Ghana a leading global pharmaceutical company is considering investing in some equipment to produce a localired vaccine named Covideure to help combat the Covid. 19 pandemic. The new equipment's capital cost is estimated at $100 million. If its purchase is approved now, the equipment can be bought and production can commence by the end of this year. 50 million has already been spent on research and development work. Estimates of revenues and costs arising from the operation of the new equipment appear as follows: Sales price (Slitre) Sales volume million litres) Variable cost (Slitre) Fixed cost (SOCK) 30 Year 1 Year 3 Year 3 Year 4 100 120 120 100 0.8 LO 12 10 50 50 40 30 30 30 Yours SD 0.8 40 30 30 Ir the equipment is brought, sales of some existing Covid-19 products will be lost, resulting in a loss of contribution of S15 million a year, over the life of the equipment. The accountant has informed you that the fixed cost includes depreciation of $20 million a year on the new equipment. It also includes an allocation of Sio million for fixed overheads. A separate study has indicated that if the new equipment were bought, additional overheads, excluding depreciation, arising from producing the chemical would be $8 million a year. Production would require additional working capital of $30 million. For the purposes of your initial calculations, ignore taxation Required: Write a publishable research paper to an International Journal using Harvard Referencing style to respond to the questions below: (a) With appropriate practical illustrations identify and discuss the investment appraisal process the company should cenbark upon in the investment decision process, 5 Marks (6) With reference to (a) above at what stage should the project be evaluated and explain two methods usually considered best techniques in assessing investment opportunities and provide reasons why one technique will be superior for the pilarmaceutical company to adopt 5 Marks (c) Discuss four non-quantifiable benefits you can identify for such investments to recognizable stakeholders of the business in the paper. 10 Marks Deduce the relevant annual cash flows associated with buying the equipment and Calculate the payback period. (i) Calculate the net present value using a discount rate of 8 per cent. (Hint: You should deal with the investment in working capital treating it as a cash outflow at the start of the project and an intlow at the end.) Assuming the pharmaceutical giant is considering three vaccines but with limited funds with the expected pattem of cash flows for each vaccine is as follows Priest Cash Flows Covicure CovidSolution Covid Mixture 5 s Initial Outlay (9) Year 1 4 5 5 Year 2 4 2 3 Year 3 5 Year 4 65 The company has a cost of capital of 12 per cent and the investment budget for the year that has just begun is restricted to S12 million. Each vaccine is divisibic (that is it is possible to undertake part of a vaccine if required) Which vaccinets) should the business invest in and why? ( If Kinapharma Ghana decision makers fail to take account of inflation in the investment decision will it matter given that in recent years, the level of inflation has been low! What would be the effect of dealing with inflation incorrectly on NPV calculations that is, would NPV be overstated or understated) by (1) discounting cash flows that include inflatsen at real discount rates and (11) discounting real cash flows at market discount rates that include inflation Marks (2) What is risk in this investment and to what extent can it be diversified away when making investment decisions Marks (8) Question Kinapharma Ghana a leading global pharmaceutical company is considering investing in some equipment to produce a localired vaccine named Covideure to help combat the Covid. 19 pandemic. The new equipment's capital cost is estimated at $100 million. If its purchase is approved now, the equipment can be bought and production can commence by the end of this year. 50 million has already been spent on research and development work. Estimates of revenues and costs arising from the operation of the new equipment appear as follows: Sales price (Slitre) Sales volume million litres) Variable cost (Slitre) Fixed cost (SOCK) 30 Year 1 Year 3 Year 3 Year 4 100 120 120 100 0.8 LO 12 10 50 50 40 30 30 30 Yours SD 0.8 40 30 30 Ir the equipment is brought, sales of some existing Covid-19 products will be lost, resulting in a loss of contribution of S15 million a year, over the life of the equipment. The accountant has informed you that the fixed cost includes depreciation of $20 million a year on the new equipment. It also includes an allocation of Sio million for fixed overheads. A separate study has indicated that if the new equipment were bought, additional overheads, excluding depreciation, arising from producing the chemical would be $8 million a year. Production would require additional working capital of $30 million. For the purposes of your initial calculations, ignore taxation Required: Write a publishable research paper to an International Journal using Harvard Referencing style to respond to the questions below: (a) With appropriate practical illustrations identify and discuss the investment appraisal process the company should cenbark upon in the investment decision process, 5 Marks (6) With reference to (a) above at what stage should the project be evaluated and explain two methods usually considered best techniques in assessing investment opportunities and provide reasons why one technique will be superior for the pilarmaceutical company to adopt 5 Marks (c) Discuss four non-quantifiable benefits you can identify for such investments to recognizable stakeholders of the business in the paper. 10 Marks Deduce the relevant annual cash flows associated with buying the equipment and Calculate the payback period. (i) Calculate the net present value using a discount rate of 8 per cent. (Hint: You should deal with the investment in working capital treating it as a cash outflow at the start of the project and an intlow at the end.) Assuming the pharmaceutical giant is considering three vaccines but with limited funds with the expected pattem of cash flows for each vaccine is as follows Priest Cash Flows Covicure CovidSolution Covid Mixture 5 s Initial Outlay (9) Year 1 4 5 5 Year 2 4 2 3 Year 3 5 Year 4 65 The company has a cost of capital of 12 per cent and the investment budget for the year that has just begun is restricted to S12 million. Each vaccine is divisibic (that is it is possible to undertake part of a vaccine if required) Which vaccinets) should the business invest in and why? ( If Kinapharma Ghana decision makers fail to take account of inflation in the investment decision will it matter given that in recent years, the level of inflation has been low! What would be the effect of dealing with inflation incorrectly on NPV calculations that is, would NPV be overstated or understated) by (1) discounting cash flows that include inflatsen at real discount rates and (11) discounting real cash flows at market discount rates that include inflation Marks (2) What is risk in this investment and to what extent can it be diversified away when making investment decisions Marks (8)