Sinclair Pharmaceuticals,a Small Drug Company,develops a Vaccine That Will Protect

question 29

Multiple Choice

Sinclair Pharmaceuticals,a small drug company,develops a vaccine that will protect against Helicobacter pylori,a bacteria that is the cause of a number of diseases of the stomach.It is expected that Sinclair Pharmaceuticals will experience extremely high growth over the next three years and will reinvest all of its earnings in expanding the company over this time.Earnings were $1.20 per share before the development of the vaccine and are expected to grow by 40% per year for the next three years.After this time,it is expected growth will drop to 5% and stay there for the expected future.Four years from now Sinclair will pay dividends that are 75% of its earnings.If its equity cost of capital is 10%,what is the value of a share of Sinclair Pharmaceuticals today?

• A)$33.33
• B)$38.96
• C)$48.30
• D)$52.00

---

Definitions:

Work in Process Inventory

The account that tracks the costs associated with the production process that is not yet completed.

Weighted-Average Method

An inventory costing method that averages the cost of goods available for sale and assigns that average cost to the units sold.

FIFO Method

A method in accounting for managing inventories and financial matters where the first items placed in inventory are the first ones to be used or sold.

Equivalent Units

A concept used in cost accounting to express the amount of work done by an incomplete production process on units of output, converted into an equivalent number of fully completed units.