Q. Gene Research, Inc. just finished a 4-year R&D and clinical trials successfully and expects a quick approval from the Food and Drug
Administration. If the company markets the product on their own, it requires $30 million immediately (n ⇓ = ⇓ 0) to build a new
manufacturing facility, and it is expected to have a 10 year product life. The R&D expenditure in the previous years and the anticipated revenues that the company can generate over the next 10 years is summarized as follows:Merck, a large drug company is interested in purchasing the R&D project and the right to commercialize the product from Gene Research, Inc., immediately (nD =D 0). What would be a
starting negotiating price for the project from Merck? Assume that Gene’s MARR ⇓ = 20%.
✅ Correct Answer: (A)
$524 million