Roche Products Pty Ltd is considering investing in an antibody treatment for COVID-19 which is forecasted to have revenue in the first year of $90,000,000. Revenue is projected to increase at 15% p.a., operating costs are 30% of annual revenue and the product life is 10 years. The project requires additional Research and Development cost in 2nd year of the project, costing $5,000,000 and in the 8th year, costing $20,500,000. At the end of the final year of production, the facility is expected to be sold for 50% of the final year revenue.

The initial investment is $650,000,000 today. Roche Products Pty Ltd has $2 billion in equity and total of $12 billion in capital. Shareholders require a return of 15%, which is a 10% premium above what debt holders require. 

Calculate the NPV and IRR of this project.

Part B

In a independent project to the COVID-19 treatment, Roche Products Pty Ltd is considering spending $2,000,000 now to purchase robotic vacuum cleaners to replace the human cleaners currently used. This is anticipated to save $800,000 in cleaning costs every quarter for 2 years, diminishing by 6% each quarter. The WACC for this project is the same as what is required to setup the COVID-19 treatment project.  

Calculate the NPV and IRR of this project.

Part C 

What would be your recommendation regarding the two projects that you have valued? Justify your answer.