Question 2 Ivan Ho is reviewing the investment merits of Biogen, a fast-growing biotechnology firm. Biogen has developed several drugs, which are…

Question 2

Ivan Ho is reviewing the investment merits of Biogen, a fast-growing biotechnology firm. Biogen has developed several drugs, which are being licensed to major drug companies. Biogen also has several drugs in final stage trials before FDA approval. Ivan notes that two drugs recently received approval which should provide Biogen solid revenue growth and generate predictable cash flow well into the future. Based on the potential for the two drugs, Biogen’s estimated annual cash flow growth rate for the next two years is 25%, and longterm growth is expected to be 12%. Because of Biogen’s attractive investment opportunities, the company does not pay dividend. Biogen’s current weighted average cost of capital is 15% and its stock is currently trading at $50 per share. Financial information for Biogen for the most recent 12 months is provided below:

 Net working capital excluding cash increased from $7,500,000 to $9,900,000.

 Book value increased from $81,250,000 to $101,250,000.

 Biogen currently has no debt.

 Research facilities and production equipment were purchased for $8,500,000.

 Biogen held non-operating assets in the amount of $900,000.

 Net income for the 12 months was $20,000,000.

 Biogen has a marginal tax rate of 40%.

 Noncash charges for depreciation and restructuring for the 12 months were $1,300,000.

Biogen’s management has indicated an interest in establishing a dividend and will fund the new drug research by issuing additional debt. (a) Compute the current free cash flow to firm and free cash flow to equity for Biogen (to the nearest million). (15 marks) (b) If Biogen decides to start paying a dividend, discuss the impact of the decision on FCFF and FCFE. (15 marks) (c) If Biogen issues additional debt, discuss the impact of this decision on FCFF and FCFE. (15 marks

Show more

Calculate Your Essay Price
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more