Some of the Corporate Finance Challenges Faced By This Company Pfizer Company

Cost of Capital: Pfizer Company
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Some of the Corporate Finance Challenges Faced By This Company Pfizer Company
Pharmaceutical companies have their unique challenges related to corporate finance (Eilenberger, 2010). Pfizer Company is one of the major pharmaceutical companies in the world, with a capital investment of over $140 billion. The company derives most of its capital from equity and debt. To ensure of its stability in the market, the company maintains stable cost of capital position, which is done through the traditional approach of capital-asset pricing model. Cost of capital is the average weighted cost of the debt and equity that a company holds in its capital base. Looking at the company’s debt of 42 billion and 433 billion cash, this means that the company’s net debt is about $7 to $ 8 billion, meaning that the capital structure of the firm is primarily equity, which is a good sign of high investor trust for the firm (WileyPLUS, 2015).
The company faces different corporate finance challenges. Developing drugs up to the point they are availed to the market is very expensive, owing to the high costs of R&D and drug trials. The firm’s projects are normally financed separately by prioritizing the existing projects (WileyPLUS, 2015). Project prioritizing for financing is sometimes a problem, which requires the determination of the productivity index of each project in order to decide the best project to invest in based on their value to patient population and profitability. Different projects have varied riskiness of cash flows and other systematic risks. Sometimes, the company has to meet certain threshold for specific projects requirement, for instance, discount rates, which if not met may render a project a failure. Planning for the optimum capital structure for the company in meeting its objectives is also challenging because the company always has to ensure it has the right liquidity to insure against possible R&D project failure, which are common in the risky pharmaceutical industry. Minimizing tax costs is another challenge that ought to looked at, to avoid increased funding cost that the company may incur. The opportunity cost of holding capital because of the insurance policy is another common problem facing the company in its verge to ...