14 May CALCULATE THE CORPORATE TAX RATE THAT NOVO PAID FOR THE LAST FINANCIAL YEAR.
Novo Nordisk A/S is 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 in 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 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 expenditure on research and development of 4% of the total amount that Novo spent on research and development in the last financial year. Also, an investment in a new production facility, which is estimated to cost $24 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 is projected to be $8 million in years 1 and 2, but only $5 million in year 3. Finally, the selling, general, and administrative costs are assumed to be $3 million in years 1 and 2, but only $2 million in year 3.
- In order to obtain the latest financial statement of Novo Nordisk, go to Yahoo! Finance(http://finance.yahoo.com/)and search for Novo Nordisk by entering the company’s ticker symbol, NVO. Go to “Financials” and download the income statement and the balance sheet. Export them to Excel by right clicking while the cursor is inside each statement. When estimating the project details, use data for the most recent year for which the financial statements are available.
- Novo has decided that the investment in the production facility should be depreciated with the straight-line method over the life of the project. Determine the amount of depreciation each year.
- Calculate the corporate tax rate that Novo paid for the last financial year.
- Use the result of Questions 2 and 3 to calculate the unlevered net income of the project for years 0 to 3.
- In years 1 to 3, the inventory of the project is 1.5 million, receivables are 15% of the project revenues, and payables are 20% of the project’s cost of goods sold. Assume that the project requires no cash. Find the net working capital for the project for each year 1 to 3. Also, find the change in net working capital for each year when assuming the project is terminated in year 3 and that net working capital has to be settled the year after the project ends—that is, find the change in net working capital for years 1 to 4.
- Calculate the free cash flow for years 0 to 4 using Eq. 7.5. Note that you can use the unlevered net income from Question 4.
- Find the net present value of the project from the calculated free cash flows when assuming that the cost of capital (CoC) for Novo is 12%. You may use the NPV function in Excel. Include cash flows 1 through 4 in the NPV function and then subtract the initial cost (i.e., add the initial cash flowCF0, which is a negative number).NPV(CoC ; CF1: CF4) + CF0
- For a presentation of the new project to your colleagues in Novo’s capital budgeting division, make a plot of the NPV as a function of the cost of capital. First, calculate the NPV of the project for a range of different assumptions of cost of capital (e.g., 5%, 10%, 15%, . . ., 40%). Then, plot the calculated NPVs as a function of the corresponding cost of capital. From the figure, note the internal rate of return of the project. Verify your result using Excel’s IRR function.
Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax.
About Writedemy
We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.
How It Works
To make an Order you only need to click on “Order Now” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Are there Discounts?
All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.