MFIN 301 Corporate Finance
Sample Final
In November 1974, Bio-Tech faced an urgent decision about the possible sale of its
Consumer Product Group (CPG) to General Drugs, a proprietary drug manufacturer. The
$25M offer, coming at a time when Bio-Tech's 1975-79 financial plan showed that new
financing would be required in large and ever-growing amounts, had sparked spirited
discussion among its directors.
Company Background
Founded in 1921, the Ferguson Supply Company manufactured and sold surgical gloves,
but soon began diversifying into other medical and lab supplies via acquisitions and the
development of an in-house R&D capability. In 1958, the firm became Bio-Tech to better
identify the nature of its business and the fact that internally developed products were
contributing to the rapid development of the field it was supplying. 1960 saw its first (and so
far only) public equity offering. By 1974, Bio-Tech's several thousand products were divided
among three divisions: the Medical Product Group (MPC), the Laboratory Product Group
(LPG), and the CPG (Exhibit 1).
The R&D group's interest in the disposable-item concept had generated products that
contributed most to Bio-Tech's rapid growth over the past 5 years. For example, new
techniques replaced staple glass and metal items used by labs, hospitals, and doctor's
offices by lower cost and convenient plastic items.
With the rapid progress of medical technologies, old products were continuously being
replaced with new ones. The management, having little confidence in the protection
provided by patents against innovators and imitators, had favored Bio-Tech's development
of a strong reputation for lead time, efficient manufacturing and skilled marketing (see
Exhibit 2, 3 and 4).
The growth of demand for medical and lab supplies had intensified competition among
established manufacturers (many being larger and financially stronger than Bio-Tech),
triggered the backward integration of several medical distributors and the entry of some
foreign firms. Bio-Tech's success, therefore, was best measured by its increased market
share in its principal medical and lab product field. The operating plans of MPG and LPG
projected 19% and 21% growth in nominal terms (see Exhibit 5).
Sale of the Consumer Product Group
CPG's performance had been disappointing in the past 5 years. Steady sales growth in
disposable products had offset only marginally falling sales in other product lines. Moreover,
CPG's profit margins were smaller than other divisions', and worse than firms in businesses
most closely comparable to CPG's, i.e. Abbott Laboratories and Johnson & Johnson.
While MPG and LPG achieved cost savings through shared distribution channels, CPG
used separate channels. When headquarters questioned CPG's ability to use these
channels efficiently, CPG's management insisted that their distribution strategy was
effective, and that it was unfair to compare CPG with the two other groups, which competed
in markets with greater profit and growth potential as well as much higher risk. CPG's lower
margins could be justified by the stability of its operations. Unlike the other groups, which
depended on a continuous stream of new products, CPG was relatively immune from the
effect of an unproductive year or two in R&D, and from the uncertainty created by
increasingly stringent federal standards for new products.
1
CPG's management also believed that CPG was unfairly penalized by Bio-Tech's
accounting practice of allocating corporate R&D expenditures to each group according to its
fraction of sales volume. Indeed, Bio-Tech's R&D activities, costing some $11M per year,
were centralized in one facility. While CPG benefited from these expenditures, many of its
products were by-products of Bio-Tech's basic R&D. For CPG, the $2.4M charge in 1974
was substantial in relation to profits.
General had offered a non-negotiable $25M for CPG. Bio-Tech's headquarters believed that
General's strategy was to use its excess cash to purchase complementary product lines,
which could be marketed by its strong distribution system.
Some Bio-Tech directors questioned the liquidation of such a large portion of the firm.
Years had been dedicated to building the company. Was it now to be dismantled? And what
were the sale's long-term policy implications? Other directors reopened the question of
CPG's role in the future of Bio-Tech. All worried about the effect of a sale on Bio-Tech's
financial statement and stock price. For one thing, it was pointed out that the sale of CPG
for $25M could create a book loss exceeding $11.9M. Nevertheless, financial managers felt
that the offer deserved serious consideration, as it would provide funds needed to finance
strong growth of MPG and LPG. They thus asked for financial managers to report on BioTech's future funding needs and financing options.
Bio-Tech's Financing Options
Financial managers and Bio-Tech's investment banker had been forecasting Bio-Tech's
financing needs (exhibit 7) and had been discussing the different alternatives to meet them.
The first one was to finance the funding needs with long-term debt. Among other covenants,
this option would require that at any point in time, the ratio of long-term debt and bank debt
to net worth remain below 50%. An alternative source of funds was to issue equity although
the financial markets' recent turmoil made this option less attractive. In particular, a majority
of directors wanted to maintain a strong stock price. Finally, financial managers wondered
how much of Bio-Tech’s immediate financing needs would be met by the sale of CPG.
2
Questions
It is essential that you state clearly the assumptions you are making, and why you are
making them. Otherwise, grading becomes impossible. Short explanations are sufficient.
Also, recall that making good assumptions is less important than conducting a reasoning
that is consistent with the assumptions made.
Bio-Tech's management is facing three major questions.
1) How much is CPG worth to Bio-Tech?
You first need to estimate CPG's value if retained by Bio-Tech, assuming (as suggested by
management) that CPG benefits from R&D that Bio-Tech would undertake anyway.
a) Estimate all the components of the WACC and the WACC itself, stating clearly what
assumptions you are making, and why you are making them.
To make grading easier, use a 14% WACC for the rest of the case.
b) Forecast Free Cash Flows for the period 1975-79, as well as their present value.
Again, state explicitly all assumptions you are making.
c) In the following scenarios, estimate a terminal value and CPG's value to Bio-Tech:
(i) CPG is liquidated at the end of 1979, (ii) no growth past 1979, (iii) 5% growth past
1979, and (iv) 8% growth past 1979. State explicitly all assumptions you are making.
2) How attractive is the sale to both parties?
a) What are Bio-Tech's net after-tax proceeds if it sells CPG for $25M (i.e., how much
funding does the sale of CPG provide to Bio-Tech)?
b) Is the sale a good deal for Bio-Tech? And for General?
c) We assumed that CPG benefits from R&D that Bio-Tech undertakes anyway. How
might your answers to 2a) and 2b) change without this assumption? What issues
might arise? (No calculations needed).
3
EXHIBIT 1: Bio-Tech, Inc., Company Products
MPG: Reusable and disposable hypodermic syringes and needles, blood-collecting equipment,
surgical blades, plastic medical tubing, medical examination gloves, diagnostic instruments, electronic
thermometers, inhalation therapy and anesthesia products.
LPG: Bacteriological culture media, antimicrobial sensitivity discs, tissue culture media and plastic
laboratory ware, syphilis and brucellosis detection kits, injectable diagnostics, disposable pipettes,
blood typing sera, cross-matching reagents, blood cell reagents.
CPG: Reusable and disposable insulin syringes and needles, thermometers, elastic bandages,
household and recreational gloves, athletic training room supplies.
EXHIBIT 2: Bio-Tech, Inc., Ten Year Financial Review
1965 1966 1967
Sales ($ 000,000's)
Net Income ($ 000,000's)
Earnings Per Share
Dividends Per Share
80.9
5.3
.69
.13
Market Price of Common Stock
High
23
Low
13
Midpoint
18
Midpoint P/E
26
99
7.2
.88
.20
1968
1969
1970
1971
1972
1973
1974
(est)
110.8 122.8 145.3 157.7 172.8 192.7 228.8 275.4
8.1
9.2
10.9 11.7 11.1 12.8 16.5 18.1
.97
1.09 1.27 1.39 1.31 1.52 1.95 2.13
.27
.27
.33
.40
.40
.40
.47
.47
Nov. 22
1974
35
21
28
32
53
31
42
43
60
48
54
50
4
69
53
61
48
78
44
61
44
62
44
53
40
65
35
50
33
57
41
49
25
62
26
44
21
32
15
EXHIBIT 3: Bio-Tech, Inc., Income Statements for Years, 1971-1974, (000’s)
1971
1972
1973
1974
$172,803
98,225
43,375
6,438
2,700
754
$192,665
108,939
48,324
7,549
2,700
502
$228,781
127,118
57,444
8,902
2,700
812
$275,437
159,613
66,266
10,857
3,317
563
INCOME BEFORE TAXES
$21,311
$24,651
$31,805
$34,821
FEDERAL INCOME TAXES
10,229
11,832
15,266
16,714
NET INCOME AFTER TAX
$11,082
$12,819
$16,539
$18,107
$3,380
7,702
$3,384
9,435
$3,961
12,578
$3,965
14,142
8,447
8,457
8,488
8,492
Earnings Per Share
Dividends Per Share
1.31
0.40
1.52
0.40
1.95
0.47
2.13
0.47
Capital Expenditures
Depreciation
10,782
5,219
9,598
6,853
16,801
7,915
25,455
8,774
Net Sales
Cost of Sales
SGA expense
R&D expense
Interest Expense
Other
Common Dividends
Addition to Retained Earnings
Common Shares Outstanding (000's)
EXHIBIT 4: Bio-Tech, Inc., Balance Sheets as of December 31, (000’s)
1972
1973
1974
ASSETS
Cash and Marketable Securities
Accounts Receivable
Inventory
Other
Total Current Assets
$32,212 $18,935
$3,251
30,892
39,117
50,019
44,376
58,545
78,730
4,551
4,476
4,091
$112,031 $121,073 $136,091
Net Fixed Assets
Other
59,835
3,980
TOTAL ASSETS
68,721
3,176
85,402
2,561
$175,846 $192,970 $224,054
LIABILITIES AND NET WORTH
Bank Loans
Accounts Payable
Accrued Expenses
Current Maturities, Long Term Debt
Total Current Liabilities
$0
12,698
9,651
0
$22,349
$0
15,114
11,445
0
$26,559
$12,258
17,525
13,678
5,000
$48,461
Long Term Debt
Stockholders' Equity
45,000
108,497
45,000
121,411
40,000
135,593
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
$175,846 $192,970 $224,054
5
EXHIBIT 5: Bio-Tech, Inc., Selected Financial Data by Groups, ($000,000’s)
Sales and Profit Performance
1971
1972
1973
1974
(est.)
Medical Products Group
Sales
EBIT1
EBIT as a Percentage of Sales
92.7
15.5
16.7%
102.1
17.1
16.8%
122.3
21.3
17.4%
148.5
24.0
16.2%
Laboratory Products Group
Sales
EBIT1
EBIT as a Percentage of Sales
39.8
4.6
11.7%
46.6
5.8
12.4%
57.3
8.1
14.1%
73.3
9.0
12.3%
Consumer Products Group
Sales
EBIT1
EBIT as a Percentage of Sales
40.3
3.9
9.6%
44.0
4.4
10.1%
49.2
5.1
10.4%
53.6
5.1
9.5%
Five Year Plan Projections 2
1975
1976
1977
1978
Medical Products Group
Sales
EBIT (.17*Sales)1
Capital Expenditures
Depreciation
Investment in Working Capital
1979
176.5
30.0
8.6
5.7
13.0
209.6
35.6
17.0
5.8
10.8
249.0
42.3
12.0
6.6
14.5
295.8
50.3
17.0
6.9
16.7
351.4
59.8
15.6
7.6
21.6
Laboratory Products Group
Sales (.13*Sales)1
EBIT1
Capital Expenditures
Depreciation
Investment in Working Capital
88.7
11.5
16.0
3.1
7.8
107.2
13.9
10.7
3.6
7.8
129.7
16.9
9.0
4.7
8.0
156.9
20.4
14.0
5.2
8.9
189.8
24.7
12.7
6.3
10.5
Consumer Products Group
Sales (.10*Sales)
EBIT1
Capital Expenditures
Depreciation
Investment in Working Capital
59.0
5.9
0.7
1.4
2.5
65.0
6.5
1.0
1.7
2.7
71.7
7.2
1.5
2.1
3.0
78.9
7.9
2.0
2.5
3.4
87.0
8.7
2.7
3.1
3.7
________________________________________________________________________________________________________________________
1
2
R&D expenditures are allocated to each group according to sales volume.
Assumes annual inflation rate of 8%.
6
EXHIBIT 6
7
EXHIBIT 7: Bio-Tech, Inc., Proforma Balance Sheets, 1975-79
Assuming CPG is retained, ($000,000’s)
1974
1975
1976
1977
1978
1979
ASSETS
Cash and Marketable Securities
Accounts Receivable and Inventory
(.48*change in sales)
Other
Total Current Assets
$3.3
$3.3
$3.3
$3.3
$3.3
$3.3
128.7
4.1
$136.1
155.6
5.0
$163.9
183.2
5.0
$191.5
216.2
5.0
$224.5
255.2
5.0
$263.5
301.6
5.0
$309.9
Net Fixed Assets
Other
Total Assets
85.4
2.6
$224.1
100.5
3.0
$267.4
118.1
3.0
$312.6
127.2
3.0
$354.7
145.6
3.0
$412.1
159.6
3.0
$472.5
Bank Debt
Accounts Payable and Accrued
Expenses (11%*change in sales)
Current Portion, Long-term Debt
Total Current Liabiities
$12.3
$12.3
$12.3
$12.3
$12.3
$12.3
31.2
5.0
$48.5
35.7
5.0
$53.0
42.0
5.0
$59.3
49.5
5.0
$66.8
58.5
5.0
$75.8
69.1
5.0
$86.4
Long-term Debt
Stockholders' Equity
40.0
135.6
35.0
152.7
30.0
173.3
25.0
198.1
20.0
227.7
15.0
263.1
0
26.7
50
64.8
88.6
108
$224.1
$267.4
$312.6
$354.7
$412.1
$472.5
LIABILITIES AND NET WORTH
Funds Need
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
EXHIBIT 8: Bio-Tech, Inc., Proforma Income Statement, 1975-79
Assuming CPG is retained ($000,000’s)
1974
1975
1976
1977
1978
1979
$275.4
38.1
3.3
$324.1
47.4
3.6
$381.8
56.0
3.3
$450.4
66.4
3.0
$531.6
78.6
2.7
$628.2
93.2
2.4
Income Before Taxes
Net Income After Tax
34.8
18.1
43.8
22.8
52.7
27.4
63.4
33.0
75.9
39.5
90.8
47.2
Dividends (.25*Net Income)
Addition to Retained Earnings
4.0
14.1
5.7
17.1
6.8
20.6
8.2
24.8
9.9
29.6
11.8
35.4
Sales
EBIT
Interest Expense1
_______________________________________________________________________________________________________________________
1 Does
not include the interest expense on any new debt issues.
8
EXHIBIT 9: CPG Asset Position 1974, (000’s)
ASSETS
1
Cash
2
Net Working Capital
Net Fixed Assets
Total Assets (Net)
$
$
0
24,136
12,800
36,936
__________________________________________________________________
1
Bio-Tech employs a centralized cash management system administered by corporate
headquarters.
2
Consists of:
Accounts Receivable
$ 12,486
Inventory
17,547
Accounts Payable
3,217
Accrued Expenses
2,680
EXHIBIT 10: Outlook for the Medical Products Industry: Research Update
By Grim, Turcotte, Rots and Shoemaker, Inc
The recent reports from some firms in the medical products industry that orders have
slowed recently do not call for a revision of our optimistic outlook for the industry over the
next five years. We expect a very modest slowdown in sales growth for 1975. This is
primarily due to cash-short hospitals attempting to cut back inventories to the lowest
possible levels. Hospital admissions continue their increase in 1975; the problem is not a
shortage of patients but their ability to pay their bills. The proposal, now being considered in
the U.S. Senate, to appropriate funds to continue expiring health care benefits for laid-off
workers should help ameliorate some of the potential cash flow crises. Earnings prospects
for the medical products industry are excellent. We continue to project and average growth
in earnings of 15% for the next five years – which compares favorably with the average
growth rate of 12% experienced by the industry in the 1965-1974 period. Continued strength
in overseas earnings will contribute to this growth, as will continued extensions of private
and public insurance programs in the United States, especially Medicare and Medicaid. The
following table presents the five-year earnings outlook for the five major medical products
companies that were reviewed in our research report of last month.
Company
American Hospital Supply
Abbott Laboratories
Baxter Laboratories
Beckon-Dickinson
Johnson & Johnson
Industry Average
Projected
1975-1980
EPS Growth Rate
Actual
1965-1974
EPS Growth Rate
Recent
Price-Earnings
Ratio
14.0%
13.5
19.0
13.5
15.5
15.5%
9.0
19.0
14.5
20.5
19
12
24
16
28
15.1
12.1
20
9
EXHIBIT 11, Bio-Tech, Inc., Information on Selected Medical Products Companies
Sales ($ 000,000)
Earnings Per Share
Dividends Per Shar
P/E (with average price)
Common Stock Price Range
High
Low
Beta (1973 Year End Estimate)
After Tax Return on Equity
Capitalization (Book Values)
Short Debt
Long Debt ($ 000)
Equity
Bond Ratings
Interest Coverage (1973)
Shares Outstanding (1973)
Sales ($ 000,000)
Earnings Per Share
Dividends Per Shar
P/E (with average price)
Common Stock Price Range
High
Low
Beta (1973 Year End Estimate)
After Tax Return on Equity
Capitalization (Book Values)
Short Debt
Long Debt ($ 000)
Equity
Bond Ratings
Interest Coverage (1973)
Shares Outstanding (1973)
1970
457
2.92
1.10
23
ABBOTT LABS
1971
1972
458
521
1.71
2.88
1.10
1.10
41
26
78
56
85
54
88
64
15.5%
8.7%
13.4%
40,577
47,169
258,842
12.3
19,248
32,852
90,244
91,693
267,521 293,396
Debentures Aa
4.8
7.4
13,625,275
BECTON-DICKINSON
1970
1971
1972
222
255
289
1.08
1.03
1.24
.30
.30
.30
42
35
34
62
27
47
25
50
33
13.1%
11.3%
12.6%
1973
620
3.35
1.20
19
AMERICAN HOSPITAL SUPPLY
1970
1971
1972
1973
510
576
688
829
0.76
0.85
0.99
1.13
0.24
0.26
0.27
0.28
48
41
47
39
80
47
0.92
14.1%
47
26
40
30
55
37
9.0%
9.4%
10.1%
93,216
98,825
325,807
5,037
17,610
286,234
6
41.2
1973
340
1.45
.35
26
45
33
1.39
13.1%
1,603
6,168
6,002
15,239
77,715
78,463
81,100
76,464
133024 145,788 165,732 186,558
Conv. Subord. Debs. Baa
10.0
7.8
9.1
10.2
16,914,052
10
9,491
7,785
14,916
14,114
307,320 335,735
Not Available
41
48.6
35,302,493
52
36
1.26
10.7%
24,335
18,893
372,157
27.4
JOHNSON & JOHNSON
1970
1971
1972
1,002
1,140
1,317
1.51
1.82
2.15
.34
.43
.45
32
43
53
60
37
100
56
133
94
15.7%
16.4%
16.5%
None
25,494
533,829
102.2
None
None
20,153
31,475
622,324 732,878
Not rated
74.7
75.6
57,523,443
1970
187
0.52
0.10
52
BAXTER LABS
1971
1972
242
278
0.68
0.77
0.11
0.13
48
60
35
19
39
25
56
35
11.8%
11.4%
11.5%
1973
355
0.95
0.15
54
61
41
1.1
12.4%
9,597
8,177
23,650
40,490
95,802 148,726 147,992 186,609
121,333 168,252 193,374 224,771
Conv.Subord. Debs. Ba
5.8
5.8
7.2
6.4
29,350,000
BIO-TECH
1971
1972
173
193
1.31
1.52
.40
.40
40
33
1973
1,611
2.59
.52
45
1970
158
1.39
.40
44
132
101
0.94
16.2%
78
44
62
44
65
35
12.9%
11.2%
11.9%
15,339
40,569
868,372
0
45,000
91,360
53.0
8.4
0
0
45,000
45,000
99,062 108,497
Not rated
8.9
10.1
8,492,000
1973
229
1.95
.47
25
57
41
1.28
13.6%
17,258
40,000
121,411
12.8
Answers
Question 1.a.
Debt ratio D/(D+E). We want the target debt ratio D/(D+E) with market values for CPG as a stand-alone. One way to try and
estimate this is to examine the debt ratio of firms in the same industry. To save time, we only examine the closest comps, Abbott and
Abbott Labs
J&J
STD
($ M)
93.2
15.3
LTD
($ M)
98.8
40.6
average
P/E
192.0
19
55.9
45
average
# shares
stock price (millions)
3.35
63.7
13.6
2.59
116.6
57.5
D
EPS
E ($M)
867.2
6,701.6
D/(D+E)
18%
1%
J&J.
Are these ratios likely to be close to the target? Even without going through the checklist, we see that J&J's 1% is probably below
the optimal ratio. We take a conservative 10%.
Cost of debt capital kD. We want the expected return to CPG's creditors if it were a stand-alone with a 10% debt ratio. One way to
estimate this is to determine CPG's debt rating. Abbott's rating is Aa, with an 18% leverage ratio. CGP's rating may be about the
same or better. Recent yields on Aaa-rated bonds are about 9% (ex. 6). For a debt ratio as low as 10%, kD is close to the interest
rate. We take a conservative 10%.
Marginal tax rate t. If we are trying to determine the value of CPG to Bio-tech, we should use Bio-Tech's marginal tax rate. From
ex.8, we have:
t = 1-(after-tax income/ before-tax income) = 1 - (47.2/90.8) = 48%.
Cost of equity capital kE. We want the expected return to CPG's shareholders if it were a stand-alone with a 10% debt ratio. First,
unlever the closest comps' equity beta.
Abbott Labs
J&J
Average
E
D/(D+E) E/(D+E)
0.92
18%
82%
0.94
0.01
99%

0.75
0.93
0.84
Both  A are not too different from each other. We use the average (0.84) as our estimate of CPG's asset beta, and relever it using
the 10% debt ratio:  E =1/(1-10%)*0.84 = 0.93. We then use the CAPM. For the market risk premium, we use the historical average
of 8%. For the risk-free rate, we use the yield on long-term government securities, 7%.
kE = 7% + 0.93 * 8% = 14.4%
11
WACC. Altogether we have WACC = 10% * 10% * (1-48%) + 90% * 14.4% = 13.5%
From now on, we use WACC= 14% as indicated in the question.
Question 1.b. Bio-Tech charges CPG for R&D expenditures that would be undertaken anyway ($2.4M in 1974). These expenditures
are not incremental to CPG and should be added back to the EBIT. Thus in 1974, EBIT/Sales = (5.1+2.4) / 53.6 = 14%.
Sales
EBIT (= 14% * Sales)
EBIT(1-t)
Dep
CAPX
NWC
FCF
PV @ 14%
1975
59.0
8.3
4.3
1.4
0.7
2.5
2.5
9.5
1976
65.0
9.1
4.7
1.7
1.0
2.7
2.7
1977
71.7
10.0
5.2
2.1
1.5
3.0
2.8
1978
78.9
11.0
5.7
2.5
2.0
3.4
2.8
12
1979
87.0
12.2
6.3
3.1
2.7
3.7
3.0
Question 1.c.
Liquidation. If the firm is shut down in 1979 and NWC is recovered fully, then TV = NWC + SV - (SV - PPE)*t. Further assuming that
SV = 0, then TV = NWC + PPE*t.
NWC79 = NWC74 (ex.9)+Sum of all NWC= 24.1+(2.5+2.7+3.0+3.4+3.7) = 39.4
PPE79 = PPE74 (ex.9) + Sum of all CAPX - Sum of all Depreciation
= 12.8 + (0.7+1.0+1.5+2.0+2.7) - (1.4+1.7+ 2.1+2.5+3.1) = 9.9
Altogether, TV = 39.4 + 9.9 * 48% = $44.1M and PVTV = 44.1/(1.14)5 = 22.9
PG's value to Bio-Tech is 9.5 + 22.9 = $32.4M
Perpetuity. Here are some scenarios with different growth rates
g%
0
5
8
TV @14%
21.4
33.3
50.0
PV of TV@14%
11.1
17.3
26.0
CPG Value
20.6
26.8
35.5
It looks like it’s better to liquidate unless CPG can grow at 8%.
Question 2.a.
Bio-Tech would get the $25M. The book value of CPG = $24.1 + $12.8 = $36.9M. Since they realize a book loss of $11.9M, they will
get a tax credit of 48%*11.9 = $5.7M. Altogether, net after-tax proceeds are $30.7M.
Question 2.b.
Under two of the scenarios (8% growth and liquidation), the proceeds from the sale are less than the value to Bio-Tech, which
means this would not be a good deal for Bio-Tech. Under the other two scenarios (0% growth and 5% growth), this would be a good
deal.
For General paying $25M, this is a good deal under all scenarios except for 0% growth. Moreover, they might improve operations
(they have better distribution channels).
Question 2.c.
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Suppose that some R&D costs are due to CPG. For Bio-Tech the sale is more attractive: It allows to reduce R&D costs, or to license
this R&D to Generals or rivals (caveat: managers are not confident in patent protection). For Generals, the sale is less attractive
unless they are already doing this R&D anyway (as is currently the case for Bio-Tech).
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