Assume Merck is announcing that it is currently in the approval phase of a Covid 19 medication. A part from Merck, there is still a number of other firms competing for an approval. If Merck is successful in being the first one getting the approval, its future free cashflow is expected to increase by EUR 800 million over the next 3 years. Pfizer has currently 9 million shares outstanding at a share price of EUR 32, EUR 50 million debts and a cost of capital of 7%. What do you think will happen if the market learns that Pfizer was the first one getting the approval for the vaccination?

Assume Merck is announcing that it is currently in the approval phase of a Covid 19 medication. A part from Merck, there is still a number of other firms competing for an approval. If Merck is successful in being the first one getting the approval, its future free cashflow is expected to increase by EUR 800 million over the next 3 years. Pfizer has currently 9 million shares outstanding at a share price of EUR 32, EUR 50 million debts and a cost of capital of 7%. What do you think will happen if the market learns that Pfizer was the first one getting the approval for the vaccination?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 20P

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