The Aplus pharmaceutical company has completed the scientific work on a new prod

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The Aplus pharmaceutical company has completed the scientific work on a new product. The investment needed for development of this completed research into a marketable product is being proposed. The forecasted Revenue, COGS and SG&A are shown below in the beginning items of the following income statement. Income Statement 0 1 2 3 4 Revenue $2,000,000 $8,000,000 $15,000,000 $15,000,000 COGS ($800,000) ($3,200,000) ($6,000,000) ($6,000,000) Gross Margin $1,200,000 $4,800,000 $9,000,000 $9,000,000 SG&A ($300,000) ($300,000) ($300,000) ($400,000) A four year time span is to be used in the evaluation of the proposal with a MARR of 25%. The income tax rate is 20%, and the capital gains tax rate is 15%.    The depreciable investment needed for the development effort will be $6,000,000 in year 0 and should be depreciated using -5-year MARR The total needed working capital in each h of the four years needed for this new product is $2,000,000 in year 0, $2,500,000 in year 1, $2,000,000 in year 2, $1,500,000 in year 3, and $1,000,000 by the end of year 4. The product line is expected to be saleable for $2,000,000 to another pharmaceutical company at the end of the fourth year. (Completed in the fourth year). Complete the Income Statement, prepare a cash flow statement, and evaluate the proposal using the present worth and internal rate of return criteria.   Solution The Aplus pharmaceutical company has completed the scientific work on a new product. The investment needed for development of this completed research into a marketable product is being proposed. The forecasted Revenue, COGS and SG&A are shown below in the beginning items of the following income statement. Income Statement 0 1 2 3 4 Revenue $2,000,000 $8,000,000 $15,000,000 $15,000,000 COGS ($800,000) ($3,200,000) ($6,000,000) ($6,000,000) Gross Margin $1,200,000 $4,800,000 $9,000,000 $9,000,000 SG&A ($300,000) ($300,000) ($300,000) ($400,000) A four year time span is to be used in the evaluation of the proposal with a MARR of 25%. The income tax rate is 20%, and the capital gains tax rate is 15%.    The depreciable investment needed for the development effort will be $6,000,000 in year 0 and should be depreciated using -5-year MARR The total needed working capital in each h of the four years needed for this new product is $2,000,000 in year 0, $2,500,000 in year 1, $2,000,000 in year 2, $1,500,000 in year 3, and $1,000,000 by the end of year 4. The product line is expected to be saleable for $2,000,000 to another pharmaceutical company at the end of the fourth year. (Completed in the fourth year). Complete the Income Statement, prepare a cash flow statement, and evaluate the proposal using the present worth and internal rate of return criteria.   Solution

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The Aplus pharmaceutical company has completed the scientific work on a new prod

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