You are a newly hired financial analyst at Novo Nordisk A/S, a health care company engaging in the discovery, development, and manufacture of pharmaceutical products. Its specialty is diabetes care and its headquarters are in Bagsvaerd (Denmark). The company sells its products all over the world, including the United States, Japan, China, Russia, India, and Europe.

As a new member of the capital budgeting division of Novo Nordisk A/S, you have been asked to determine the net cash flows and the NPV of a proposed new diabetes drug. The drug is expected to be on the market for three years only, because Novo expects to launch a new and better version of the drug in the near future. If the project is initiated, it will require an upfront (that is, year zero) expenditure on the R&D of 4% of the total amount that Novo spent on the R&D in the last financial year. Also an investment in a new production facility, which is estimated to cost $141.35 million, will be necessary.

The product revenues for years 1, 2, and 3 are expected to be 0.8%, 0.6%, and 0.4%, respectively, of the total revenue of Novo for the last financial year. The cost of goods sold (COGS) is projected to be the same percentage of the sales as in the last financial year. The overheads (sales, general, and administrative costs) are assumed to be 179.78 million EUR in the first two years and 152.54 million EUR in the last one.

1) To obtain the latest financial statements of Novo Nordisk A/S, look at the XL file provided.

2) Novo has decided that investments in the production facilities should be depreciated with the straightline method over the life of the project. Determine the amount of depreciation each year.

3) Calculate the corporate tax rate that Novo paid for the last financial year.

4) Calculate the unlevered net income for the years 0 to 3.

5) In years 1 to 3 the inventory, the receivables, and the payables will be the same proportions of COGS and sales respectively as in the last financial year. Assume that the project requires no cash to be held for security reasons. Find the net working capital (NWC) for the project for each year 1 to 3. Also find the change in the NWC assuming the project is terminated in year 3 and that net working capital has to be settled in the year after the project ends.

6) Calculate the free cash flows (FCF) for years 0 to 4. 7) Find the net present value of the project assuming that the cost of capital for Novo is 12%. 8) Should NOVO invest in the new diabetes drug? What is the IRR of the project?

In Millions of EUR (except share items) 12 months ending 2016-12-31 Pro-forma Revenue Other Revenue, Total Total Revenue COGS Gross Profit Gross profit margin 78,026.00 0.00 78,026.00 13,465.00 64,561.00 82.74% Selling/General/Admin. Expenses, Total Research \& Development Depreciation/Amortization Interest Expense(Income) - Net Operating Unusual Expense (Income) Other Operating Expenses, Total Total Operating Expense 26,537.00 10,897.00 0.00 0.00 0.00 2,347.00 48,552.00 Operating Income, EBIT Ebit margin 29,474.00 37.77% Interest Income(Expense), Net Non-Operating Gain (Loss) on Sale of Assets Other, Net Income Before Tax, EBT 27,811.00 Income After Tax 21,432.00 Minority Interest Equity In Affiliates Net Income Before Extra. Items Accounting Change Discontinued Operations Extraordinary Item Net Income 21,432.00 In Millions of EUR (except share items) As of 2016-12-31 Pro-forma Cash \& Equivalents Short Term Investments Cash and Short Term Investments Accounts Receivable - Trade, Net Receivables - Other Total Receivables, Net Total Inventory Prepaid Expenses Other Current Assets, Total Total Current Assets Property/Plant/Equipment, Total - Gross Accumulated Depreciation, Total Goodwill, Net Intangibles, Net Long Term Investments Other Long Term Assets, Total Total Assets Accounts Payable Accrued Expenses Notes Payable/Short Term Debt Current Port. of LT Debt/Capital Leases Other Current liabilities, Total Total Current Liabilities Long Term Debt Capital Lease Obligations Total Long Term Debt 0.00 4,552.00 16,105.00 11,843.00 0.00 11,843.00 9,543.00 1,033.00 1,639.00 40,163.00 42,604.00 21,065.00 Deferred Income Tax Minority Interest Other Liabilities, Total Total Liabilities Redeemable Preferred Stock, Total Preferred Stock - Non Redeemable, Net Common Stock, Total Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Treasury Stock - Common Other Equity, Total Total Equity Total Liabilities \& Shareholders' Equity Shares Outs - Common Stock Primary Issue Total Common Shares Outstanding 0.00 542.58 In Millions of EUR (except share items) 12 months ending 2016-12-31 Pro-forma Revenue Other Revenue, Total Total Revenue COGS Gross Profit Gross profit margin 78,026.00 0.00 78,026.00 13,465.00 64,561.00 82.74% Selling/General/Admin. Expenses, Total Research \& Development Depreciation/Amortization Interest Expense(Income) - Net Operating Unusual Expense (Income) Other Operating Expenses, Total Total Operating Expense 26,537.00 10,897.00 0.00 0.00 0.00 2,347.00 48,552.00 Operating Income, EBIT Ebit margin 29,474.00 37.77% Interest Income(Expense), Net Non-Operating Gain (Loss) on Sale of Assets Other, Net Income Before Tax, EBT 27,811.00 Income After Tax 21,432.00 Minority Interest Equity In Affiliates Net Income Before Extra. Items Accounting Change Discontinued Operations Extraordinary Item Net Income 21,432.00 In Millions of EUR (except share items) As of 2016-12-31 Pro-forma Cash \& Equivalents Short Term Investments Cash and Short Term Investments Accounts Receivable - Trade, Net Receivables - Other Total Receivables, Net Total Inventory Prepaid Expenses Other Current Assets, Total Total Current Assets Property/Plant/Equipment, Total - Gross Accumulated Depreciation, Total Goodwill, Net Intangibles, Net Long Term Investments Other Long Term Assets, Total Total Assets Accounts Payable Accrued Expenses Notes Payable/Short Term Debt Current Port. of LT Debt/Capital Leases Other Current liabilities, Total Total Current Liabilities Long Term Debt Capital Lease Obligations Total Long Term Debt 0.00 4,552.00 16,105.00 11,843.00 0.00 11,843.00 9,543.00 1,033.00 1,639.00 40,163.00 42,604.00 21,065.00 Deferred Income Tax Minority Interest Other Liabilities, Total Total Liabilities Redeemable Preferred Stock, Total Preferred Stock - Non Redeemable, Net Common Stock, Total Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Treasury Stock - Common Other Equity, Total Total Equity Total Liabilities \& Shareholders' Equity Shares Outs - Common Stock Primary Issue Total Common Shares Outstanding 0.00 542.58