LiveForever Biotechnology Corporation (LFBC) has a new potential drug developed by their research group that they are considering moving from the lab into production. The available information is listed below with production and sales to start in year 1.
All new working capital will be put in place during year 1 and will continue past the proposal time frame (not set to zero in year 5).
The salvage value in year 5 is zero.
Determine the internal rate of return and present worth.
Year 1 2 3 4 5
Sales Revenue Forecast $50.00 $75.00 $150.00 $200.00 $300.00
Past research costs $100 million
Facilities Investment $8 million
Depreciation on new facility 5 years straight line
Cost of Goods Sold (COGS) 30% of revenues
Start up costs $20 million Expensed in first year (only)
Marketing $20 million annually
Management $30 million annually
Inventory 20% of revenues
Accounts Receivable 40% of revenues
Accounts Payable 65% of COGS
MARR 20%
Tax Rate 25%