Financial and statistical analysis : analyzing project feasibility through financial mathematics using a biopharma company as a case study /
Companies regularly engage in large-scale capital projects to achieve growth and increase shareholder value. These projects can include, among other examples, internal growth through the development of new facilities, acquisition of other companies, and major R&D projects. As part of the process...
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| Format: | eBook |
| Language: | English |
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London :
SAGE Publications, Ltd.,
2022.
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| Series: | SAGE research methods cases.
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| Subjects: | |
| Online Access: | Connect to the full text of this electronic book |
| Summary: | Companies regularly engage in large-scale capital projects to achieve growth and increase shareholder value. These projects can include, among other examples, internal growth through the development of new facilities, acquisition of other companies, and major R&D projects. As part of the process of researching and planning, a company will engage in complex calculations of the financial feasibility of its proposed project. Steps in this process include (1) computing the weighted average cost of capital (WACC) for the company; (2) generating extensive statistical data on the incremental sales and costs of the prospective project over a multiyear term, including variable and allocated fixed costs; (3) calculating the incremental net revenues accruing from the project over a multiyear term; (4) conducting a net present value (NPV) analysis of this stream of incremental revenues, discounted at the WACC; and (5) using this NPV to determine the financial feasibility of the project.This is a financial analysis based on data collection, statistical analysis, calculation of revenues and costs, present-value computation, and the calculation of WACC. Most important, it is a probabilistic calculation. Since future revenues and costs cannot be ascertained beyond a certain reasonable level of probability, those uncertainties need to be reflected in the financial feasibility analysis, by using different assumptions of revenues and costs, and estimating their probability. As Casey Stengel once said, "Never make predictions, especially about the future . . it hasn't happened yet." This process of financial feasibility will be described using a biopharma company ("Bio") as an example. Bio was engaged in developing a new cancer-treatment drug. Given the significant cost of developing this drug, Bio needed to determine for itself, and for its investors, the likely NPV of this investment, under different assumptions. All of these variables were expressed under a number of different scenarios of probabilities. |
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| Physical Description: | 1 online resource : illustrations. |
| Bibliography: | Includes bibliographical references and index. |
| ISBN: | 9781529798395 1529798396 |