Calculator Allowed: No



Transcription of this question: Altair IncorporatedAltair Incorporated has been operating in the pharmaceutical industry for over 50 years. Over thepast 5 years, it has been conducting research to try and develop a vaccine to minimize the effectsof malariiL NO cure currently exists.Stakeholder anticipation has been considerable Recent media reports suggest that Altair Incorporatedis very close to manufacturing a prototype, called Zyra_ Furthermore, the media speculation hasrevealed that Altair Incorporated is considering locating a new production facility in either one Oftwo countries located in sub-Saharan Africa where malaria is most prevalent If successfully patented,Zyra will guarantee Altair Incorporated substantial profits. Two potential countries have beenidentified as potential sites and have been code named Alpha and Bravo. The construction Of eachfacility and product launch is expected to take one year, the patent will last for 5 years.The cost of building the facilities in 2009 is as follows:AlphaBravoSm240180The estimated net cash inflow (Sm) from Zyra is as follows:201080201180201270201360201450Alpha is a prosperous nation with a stable government, reliable infrastructure and a strong economy.Labour costs are higher than in Bravo and the unemployment rate is 40/0. A competitor is alreadylocated there and this may give the potential for external economies Of scale.Bravo is in the middle ofreconstruction after a civil war. Much Ofthe country’s infrastructure needsto be rebuilt. Some financial assistance may be provided by the World Bank to Altair Incorporated.The incidence of malaria in Bravo is much higher than in Alpha.Because Of the high research and development costs, shareholders want Zyra to be brought tomarket quickly. Altair Incorporated also wants to set a fixed price for Zyra globally. However,some international pressure groups have been critical Of pharmaceutical companies that have refusedto conduct price discrimination. They have argued that it is unethical to charge high prices tocustomers who are at the greatest risk Of malaria infection, but who can least afford them.(This question continues on the following page)(Question I continued)(a)(b)(c)Define the following terms:(i)(ii)(i)(ii)patentprice discrimination.Calculate the payback, average rate Of return and net present value,using a discount factor Of 10%, for Altair Incorporated for bothproduction facilities in Alpha and Bravo. (Show all your working)Comment on your results from part (b)(i) and Other information from thestimulus material.(iii) Explain two non-financial factors Altair Incorporated should alsoconsider before selecting the location Of the Zyra production plant.[2 marks][2 marks][8 marks][3 marks][4 marks]Analyse two possible conflicts that could arise between stakeholders ifAltair Incorporated sets a fixed price globally.[6 marks]

Leave a Reply