Homework Sourse6 A pharmaceutical manufacturer has projected net profits fo
6. A pharmaceutical manufacturer has projected net profits for a new drug that is being released to the market over the next five years: Use a spreadsheet to find the net present value of these cash flows for a discount rate of 8%.
Year 1 ($675,000,000)
Year 2 ($445,000,000)
Year 3 ($175,000,000)
Year 4 $125,000,000
Year 5 $530,000,000
Solution
using excel, the NPV for a discount rate of 8% for the periods is
| Time | ||||||||
| Year | cash flow | 0 | 1 | 2 | 3 | 4 | 5 | NPV |
| 1 | 675,000,000.00 | 675,000,000.00 | 625,000,000.00 | 1,300,000,000.00 | ||||
| 2 | 445,000,000.00 | 445,000,000.00 | 412,037,037.04 | 381,515,775.03 | 1,238,552,812.07 | |||
| 3 | 175,000,000.00 | 175,000,000.00 | 162,037,037.04 | 150,034,293.55 | 138,920,642.18 | 625,991,972.77 | ||
| 4 | 125,000,000.00 | 125,000,000.00 | 115,740,740.74 | 107,167,352.54 | 99,229,030.13 | 91,878,731.60 | 539,015,855.01 | |
| 5 | 530,000,000.00 | 530,000,000.00 | 490,740,740.74 | 454,389,574.76 | 420,731,087.74 | 389,565,821.98 | 360,709,094.43 | 2,646,136,319.65 |
