Estimate Pharma’s sustainable sales growth rate based on its 2019 financial statements. [Hint: You need to estimate the beginning of period stockholders’ equity based on the information provided.] What financial policy change might Pharma Biotech make to improve its sustainable growth rate? Show your calculations. Pharma Biotech CorporationThe Pharma Biotech Corporation spent several years working on developing a DHA product that can be used to providea fatty-acid supplement to a variety of food products. DHA stands for docosahexaenoic acid, an omega-3 fatty acidfound naturally in cold-water fish. The benefits of fatty fish oil have been cited in studies of the brain, the eyes, and theimmune system. Unfortunately, it is difficult to consume enough fish to get the benefits of DHA, and most individualsmight be concerned about the taste consequences associated with adding fatty fish oil to eggs, ice cream, or chocolatecandy. To counter these constraints, Pharma Biotech and several competitors have been able to grow algae and otherplants that are rich in DHA. The resulting chemical compounds then are used to enhance a variety of food products.Pharma Biotech's initial DHA product was designed as an additive to dairy products and yogurt. For example, theventure's DHA product was added to cottage cheese and fruit-flavored yogurts to enhance the health benefits of thoseproducts. After the long product development period, Pharma Biotech began operations in 2018. Income statement andbalance sheet results for 2019, the first full year of operations, have been prepared.Pharma Biotech, however, is concerned about forecasting its financial statements for next year because it is uncer-tain about the amount of additional financing for assets that will be needed as Pharma Biotech Corporation the ventureramps up sales. Pharma Biotech expects to introduce a DHA product that can be added to chocolate candies. Notonly will consumers get the satisfaction of the taste of the chocolate candies, but they will also benefit from the DHAenhancement. Because this is anticipated to be a blockbuster new product, sales are anticipated to increase 50 percentnext year (2020), even though the new product will come online in midyear. An additional 80 percent increase in sales isexpected the following year (2021). PHARMA BIOTECH CORPORATIONINCOME STATEMENT FOR DECEMBER 31, 2019(THOUSANDS OF DOLLARS)Sales15,000Operating expenses- 13,000ЕBIT2,000Interest- 400EBT1,600Taxes (40% rate)-640Net income960Cash dividends (40% payout)Added retained earnings-384576BALANCE SHEET AS OF DECEMBER 31, 2019(THOUSANDS OF DOLLARS)Cash and marketable securities $ 1,000Accounts payable$ 1,600Accounts receivable2,000Bank loan1,800Inventories2,200Accrued liabilities1,200Total current assets5,200Total current liabilities4,600Long-term debt2,200Common stock2,400Fixed assets, net6,800Retained earnings2,800Total assets$12,000Total liabilities and equity$12,000

The sustainable growth rate (SGR) is defined as a growth rate that a firm can grow without using any…

Estimate Pharma’s sustainable sales growth rate based on its 2019 financial statements. [Hint: You need to estimate the beginning of period stockholders’ equity based on the information provided.] What financial policy change might Pharma Biotech make to improve its sustainable growth rate? Show your calculations

Estimate Pharma’s sustainable sales growth rate based on its 2019 financial statements. [Hint: You need to estimate the beginning of period stockholders’ equity based on the information provided.] What financial policy change might Pharma Biotech make to improve its sustainable growth rate? Show your calculations

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter14: Quality And Environmental Cost Management

Section: Chapter Questions

Problem 23E: Coyle Pharmaceuticals produces two organic chemicals (Org AB and Org XY) used in the production of...

See similar textbooks

Similar questions

Rachel Duncan is the CEO of Dyad Pharmaceuticals, and she faces a decision about her company's newest and most promising drug candidate: NZT-48. Clinical trials have been completed, and the team awaits an approval decision from the U.S. Food and Drug Administration (FDA) before it can be marketed. In the meantime, Ms. Duncan receives an offer from a global biotech company, International Genetics Incorporated (InGen) to license NZT-48 from Dyad. (Licensing here means that InGen provides capital to help the development and launch process of the new drug, but will share the profits with Dyad once the drug enters the market.) With InGen's offer, Ms. Duncan has a decision to make right now, before the FDA's decision. She can accept InGen's offer. If FDA approves the new drug, then Ms. Duncan estimates that her company's valuation will reach $3 billion; if FDA does not approve, with InGen's injected capital, Ms. Duncan estimates that her company would still value at $1 billion. If Ms. Duncan…
Humanics Ltd is considering a proposed investment to manufacture medical equipment for a large-scale international research project in the area of immunology. A new study found linking particular genes with particular traits may be used to find drug targets and may ultimately lead to new therapies to treat different autoimmune diseases (e.g., rheumatoid arthritis, Graves’ disease, Addison’s disease, multiple sclerosis, type 1 diabetes etc.). Such diseases are gaining ground and already affect millions of people around the world, so the outcome of the intended research could have a large application for future immunotherapy. An initial feasibility study cost $125,000 and showed that the project requires an initial investment of $18 million, which includes $2 million of new working capital necessary for production. The annual free cash flow is estimated to be $5.5 million for 10 years, the envisioned length of the research study at which time working capital will be recovered. The…
Humanics Ltd is considering a proposed investment to manufacture medical equipment for a large-scale international research project in the area of immunology. A new study found linking particular genes with particular traits may be used to find drug targets and may ultimately lead to new therapies to treat different autoimmune diseases (e.g., rheumatoid arthritis, Graves’ disease, Addison’s disease, multiple sclerosis, type 1 diabetes etc.). Such diseases are gaining ground and already affect millions of people around the world, so the outcome of the intended research could have a large application for future immunotherapy. An initial feasibility study cost $125,000 and showed that the project requires an initial investment of $18 million, which includes $2 million of new working capital necessary for production. The annual free cash flow is estimated to be $5.5 million for 10 years, the envisioned length of the research study at which time working capital will be recovered. The…
Humanics Ltd is considering a proposed investment to manufacture medical equipment for a large-scale international research project in the area of immunology. A new study found linking particular genes with particular traits may be used to find drug targets and may ultimately lead to new therapies to treat different autoimmune diseases (e.g., rheumatoid arthritis, Graves’ disease, Addison’s disease, multiple sclerosis, type 1 diabetes etc.). Such diseases are gaining ground and already affect millions of people around the world, so the outcome of the intended research could have a large application for future immunotherapy. An initial feasibility study cost $125,000 and showed that the project requires an initial investment of $18 million, which includes $2 million of new working capital necessary for production. The annual free cash flow is estimated to be $5.5 million for 10 years, the envisioned length of the research study at which time working capital will be recovered. The…
Humanics Ltd is considering a proposed investment to manufacture medical equipment for a large-scale international research project in the area of immunology. A new study found linking particular genes with particular traits may be used to find drug targets and may ultimately lead to new therapies to treat different autoimmune diseases (e.g., rheumatoid arthritis, Graves’ disease, Addison’s disease, multiple sclerosis, type 1 diabetes etc.). Such diseases are gaining ground and already affect millions of people around the world, so the outcome of the intended research could have a large application for future immunotherapy. An initial feasibility study cost $125,000 and showed that the project requires an initial investment of $18 million, which includes $2 million of new working capital necessary for production. The annual free cash flow is estimated to be $5.5 million for 10 years, the envisioned length of the research study at which time working capital will be recovered. The…
Humanics Ltd is considering a proposed investment to manufacture medical equipment for a large-scale international research project in the area of immunology. A new study found linking particular genes with particular traits may be used to find drug targets and may ultimately lead to new therapies to treat different autoimmune diseases (e.g., rheumatoid arthritis, Graves’ disease, Addison’s disease, multiple sclerosis, type 1 diabetes etc.). Such diseases are gaining ground and already affect millions of people around the world, so the outcome of the intended research could have a large application for future immunotherapy. An initial feasibility study cost $125,000 and showed that the project requires an initial investment of $18 million, which includes $2 million of new working capital necessary for production. The annual free cash flow is estimated to be $5.5 million for 10 years, the envisioned length of the research study at which time working capital will be recovered. The…
Coyle Pharmaceuticals produces two organic chemicals (Org AB and Org XY) used in the production of two of its most wide-selling anti-cancer drugs. The controller and environmental manager have identified the following environmental activities and costs associated with the two products: Required: 1. Calculate the environmental cost per pound for each product. Which of the two products appears to cause the most degradation to the environment? 2. In which environmental category would you classify excessive use of materials and energy? 3. Suppose that the toxin releases cause health problems for those who live near the chemical plant. The costs, due to missed work and medical treatments, are estimated at 2,025,000 per year. How would assignment of these costs change the unit cost? Should they be assigned?
Coyle Pharmaceuticals produces two chemicals (Chem AB, and Chem XY) used in the production of two of its most wide-selling anti-cancer drugs. Coyle Pharmaceuticals has recently received significant criticism from environmental groups, local residents, and the federal government concerning its environmental performance. The CEO of the company wants to know which product is the main source of the environmental problems. The Management Accountant has assembled the following data to help answer this question: Chem AB Chem XY Pounds of fertilizer produced 6,000,000 5,000,000 Pounds of scrap recycled 80,000 20,000 Packaging materials (kilograms) 2,400,000 1,200,000 Energy usage (kilowatt hours) 800,000 400,000 Engineering hours (process design) 18,000 12,000 Pollution control (machine hours) 300,000 75,000 Pounds of solid residues treated 90,000 30,000 Inspection hours (environmental) 30,000 15,000 Cleanup…
Randwick Medical Laboratory Ltd, RMLL, a medical research entity, has discovered a cure for a previously incurable disease. RMLL is protecting the drug’s formula by keeping it secure in the company vault, rather than by patenting it. RMLL shortly plans to start discussions with vitally interested pharmaceutical companies about producing the drug for commercial sale. Being the first of its kind and, therefore, unique, RMLL has no idea as to the formula’s value. Costs incurred to date in developing the formula are impossible to identify, given that the cure was discovered as a by-product of another research project. Required Outline how RMLL should account for the formula, justifying your answer by reference to relevant definitions and recognition criteria.
Noven Pharmaceuticals, Inc., headquartered in Miami, Florida, describes itself in a recent annual report as follows. Noven Pharmaceuticals, Inc. Noven is a place of ideas—a company where scientific excellence and state-of-the-art manufacturing combine to create new answers to human needs. Our transdermal delivery systems speed drugs painlessly and effortlessly into the bloodstream by means of a simple skin patch. This technology has proven applications in estrogen replacement, but at Noven we are developing a variety of systems incorporating bestselling drugs that fight everything from asthma, anxiety and dental pain to cancer, heart disease and neurological illness. Our research portfolio also includes new technologies, such as iontophoresis, in which drugs are delivered through the skin by means of electrical currents, as well as products that could satisfy broad consumer needs, such as our anti-microbial mouthrinse. Noven also reported in its annual report that its activities to…
Tommy Gunn is a division manager for K-Cern Inc., a small pharmaceutical company. Tommy's division has been working on a new drug that has the potential to revolutionize the treatment of skin cancer. Once the drug is proven to be effective in clinical trials, it will be approved for sale by the government and patented by the company. Because of the potential market for this drug, it is highly likely that the company's revenues and net income will increase significantly when it is approved. Tommy recently saw an internal company memo indicating that the drug passed its final clinical trial and that the company has received government approval to sell the drug. The company will issue a press release announcing this news in the next two days, and this announcement is expected to result in a dramatic increase in the company's stock price. Tommy knows that there is “free money” to be made if he invests in the stock before the announcement is made. However, K-Cern has a strict policy against…
Tommy Gunn is a division manager for K-Cern Inc., a small pharmaceutical company. Tommy's division has been working on a new drug that has the potential to revolutionize the treatment of skin cancer. Once the drug is proven to be effective in clinical trials, it will be approved for sale by the government and patented by the company. Because of the potential market for this drug, it is highly likely that the company's revenues and net income will increase significantly when it is approved. Tommy recently saw an internal company memo indicating that the drug passed its final clinical trial and that the company has received government approval to sell the drug. The company will issue a press release announcing this news in the next two days, and this announcement is expected to result in a dramatic increase in the company's stock price. Tommy knows that there is “free money” to be made if he invests in the stock before the announcement is made. However, K-Cern has a strict policy against…