Investment and Valuation for Fosebeck Generic Drug Co - Coursework Sample

EXECUTIVE SUMMARY

The purpose of writing this report for Fosebeck Generic Drug Co (Fosebeck) is to give answers and solution to the questions asked like;

1. What projects to choose for the near future?

2. How to finance these projects?

To obtain these solutions correctly we shall use the three projects, and their data work from excel sheets and the financial analysis found for the net present value (NPV) and Internal rate of return (IRR). Also, we shall look at how depreciation value affects these projects entirely as the years go by to give a clear financial overview.

We shall use an in-depth summary of the financial analysis done on excel based on the three projects, to come up with correct and reasonable finds that will help in solving the firms problem statement.

PROBLEM STATEMENT

This is a very important part in that we have to know the problem we are working on to give a solution or an answer. Therefore from this firm, we can state that their problem is what kind of project to choose from and how to finance it.

The problem statement gives an instant as to what the firm needs, that is, the firm needs more clients, to grow economically that is, higher profits and grates returns. This also raises the statement that in the past most of their projects didnt work because of finances and other factors.

From the projects given by the firm, we shall be able to find out the solution to this problem statement and answers depending on the financial analysis done on excel spreadsheet.

DESCRIPTION OF OPTIONS

We shall use the given method to solving the problem statement: What projects to choose from and how to finance them. The first method will be the one the firm has given of comparing between three projects and seeing which one should be most suitable to work on. This will do by use of excel solutions and also its financial analysis.

This method will answer the questions in that from the analysis we shall obtain valse that will give us a correct way of going about when it comes to projects selection and also a rough estimate of the finances required.

The plan is to obtain the NPV and IRR of all the projects and compare them that is see which one has a positive trend and also will help the firm to acquire profits, not losses. Also from the excel solutions, we shall be able to view the depreciation value expenditure value incurred throughout the given years and be able to give a conclusion to which of the projects is best.

After all the comparisons and solution we can then justify if this method will work and what the firm can be able to do to salve their problem statement.

EVALUATION CRITERIA

The criteria we shall use the comparison of NPV in all the projects. Therefore we can say that from Automation project NPV in excel was obtained as the present value using 12% of the cost of capital which gives us $66.92. And that of Fosbuvir project is a negative value of -$1308.00 at 12% cost of capital which shows a loss as the years go by as compared to Automation project.

If we look at the IRR of Automation which is 18.484% and compare it to that of Fosbuvir project which is 2.33% we can also say that the internal rate of return for the Fosbuvir project is less as compared to that of the Automation project. This shows that loss in production and profits when it comes to Fosbuvir project.

On the other hand, if FDA approval Pharmasets revenues and costs will be similar to Fosbecks, but SG&A expenses will be higher. If Fosbeck were to acquire Pharmaset, it would be able to bring SG&A costs down to Fosbecks level.

If we look at the depreciation value of these projects, we find that the depreciation value for Automation project changes as the years go by while that of Fosbuvir project and the Pharmaset project is constant throughout the years which shows that Automation project gives a clear indication on what to predict in future income flow.

Using these comparisons, we shall, therefore, say that from our financial analysis using excel spreadsheet examples we find that the firm can opt to choose Automation. This is because from the excel solutions we have obtained with the projects automation gives a clear view and picture of what they should expect and also do.

The financial cost of these projects varies too in that the finance expenditure on Automation is lower by far from the other two projects which will help in saving a lot as compared to that of Fosbuvir and Pharmaset projects. Also Pharmaset project we have to wait until the FDA approval is ready before we work on the project.

RECOMMENDATION

Using the above evaluation from the three projects clearly, we can state that for the firm to solve their problem they will have to use Automation as a project with incorporation of Pharmaset because by them buying Pharmaset they can be able to reduce SG&A costs down to Fosbecks level.

This will be a good project because it will cut their cost of capital at 12% and also increase their yearly income, hence creating a market for themselves and an increase to the revenue as the years go by

Financially if we look at the crystal ball for the Fosbuvir project and that of Automation we still opt to use Automation because of that of Fosbuvir project, each year there is a 5% probability of the patent becoming obsolete due to a new drug entering the market, in which case the revenues will drop to zero. We can also say that Automation cuts a lot of costs by saving on labor cost and waste disposal cost.

We can also say that Automation project is the best because its risk can be dealt with as compared to that of both Fosbuvir and Pharmacist. This is because if there is no approval from FDA the project fails, therefore, the firm incurs great loss that year.

The recommendation of Automation project is based on the fact that its value of NPV is positively growing and the IRR is also positive and high as compared to that of the two projects which have a negative NPV and a lesser IRR value in a given grace period.

We can also see that from the analysis done the depreciation value in Automation project differs from the years change which can be used by the firm to come up with a positive annual report. This can, therefore, give a clear financial report as compared to the two projects.

CONCLUSION

In conclusion, Automation project is the most reasonable project to use as a firm in that it will increase the firms revenue positively and reduce financial expenditure though out the years. This is because the other two the firm will have to pour in a lot of funds that will, manpower and also waste a lot of time before they achieve what they want.