Answer: The present value of the new drug is $19.33 million
We follow these steps to arrive at the answer:
Expected Revenues from the drug in year 1(P) $2 million
Growth Rate (g) 2% p.a.
No. of years (n) 17 years
Discount rate (r) 9% p.a.
Since the revenues are expected to grow at a constant rate of 2% p.a, we can treat this series of cash flows as a <u>growing annuity. </u>
We calculate the Present Value of a growing annuity with the following formula:
![PV = \frac{P}{r-g}*\left [ 1- \left (\frac{1+g}{1+r}\right)^{n}\right]](https://tex.z-dn.net/?f=PV%20%3D%20%5Cfrac%7BP%7D%7Br-g%7D%2A%5Cleft%20%5B%201-%20%5Cleft%20%28%5Cfrac%7B1%2Bg%7D%7B1%2Br%7D%5Cright%29%5E%7Bn%7D%5Cright%5D)
Substituting the values we get,
![PV = \frac{2}{0.09-0.02}*\left [ 1- \left (\frac{1+0.02}{1+0.09}\right)^{17}\right]](https://tex.z-dn.net/?f=PV%20%3D%20%5Cfrac%7B2%7D%7B0.09-0.02%7D%2A%5Cleft%20%5B%201-%20%5Cleft%20%28%5Cfrac%7B1%2B0.02%7D%7B1%2B0.09%7D%5Cright%29%5E%7B17%7D%5Cright%5D)
![PV = \frac{2}{0.07}*\left [1- 0.323558233\right]](https://tex.z-dn.net/?f=PV%20%3D%20%5Cfrac%7B2%7D%7B0.07%7D%2A%5Cleft%20%5B1-%200.323558233%5Cright%5D)
Answer: 126.3 days.
Explanation:
The Operating Cycle essentially refers to how long it takes a business to convert inventory to cash. The entire period between production, to selling to recovering money from Receivables is incorporated here.
The formula therefore is,
= Days Sales in inventory + Days Sales Receivables
= 84.6 + 41.7
= 126. 3 days
Answer:
Dr Treasury stocks 200
Cr Cash 200
Explanation:
Whenever treasury stock is repurchased, you must record the full purchase price under treasury stock account (debit balance) and credit cash or any other asset used to pay for them.
Treasury stock is a contra equity account that reduces the value of shareholders' equity, that is why it has a debit balance while shareholders' equity has a credit balance.
