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Finance 414 Fall 2014 - Instructor Hayong Yun

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Finance 414 Fall 2014 - Instructor Hayong Yun;Cephalon Inc. - Case Questions (Due November 13, 2014);You should submit your assignment by email (yunha@bus.msu.edu). In;your report, please answer the questions listed below. Make any assumptions you feel;are necessary to provide a complete answer to the questions. There are no correct;answers, and part of your job is to take use the facts of the case to make reasonable;assumptions to arrive at answers you can defend. You will be graded on the quality;depth, and persuasiveness of your answers. Please show the details of all calculations.;Please limit your report to 5 pages including all text and supporting tables and exhibits.;(1) If Myotrophin is approved by the FDA, would you recommend that Cephalon follows;a strategy of making an immediate one time payment to purchase all of the rights to this;drug rather than making a stream of payments under the milestone payment/interim;license/purchase option agreement that was in place? Explain your reasoning.;(2) Evaluate the SBC proposal to sell Cephalon capped call options (e.g., Black and;Scholes equation. Relevant parameters such as volatility and interest rate are given in;reference [2]). Estimate the value of these options and compare this to the value of the;stock they will give up in order to purchase the options.;(3) Would you recommend that Cephalon accept the SBC proposal? How does this;financing strategy compare to a strategy of waiting to see if Myotrophin is approved and;then issuing equity?;For those who present their work in class (e.g., power point slides) will be given extra 2;points.;References;[1] Cephalon Inc., April 1998, HBS Case 9-298-116.;[2] Chacko, George, Peter Tufano, and Geoffrey Verter, 2001, Cephalon, Inc. Taking;Risk Management Theory Seriously, Journal of Financial Economics 60:449-485.

 

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