American Apparel Inc. - Saved from Bankruptcy but can it sustain?

1. Set up the Net Income Statement for the joint venture.

2. Calculate the Joint-Venture's annual cash flows from the project.

3. Calculate the Net Present Value of the overall joint venture prior to Drug Revolution's payment of $25.9 million under a base case scenario.

4. Assuming Drug Revolution will negotiate a 70% share in the venture and that they pay a lump sum payment of $25.9 million in 2013, what is the resulting NPV to Drug Revolution under the base case scenario.

Assuming Drug Revolution will negotiate a 70% share in the venture and that they pay a lump sum payment of $25.9 million in 2013, what is the resulting NPV to Drug Revolution under the base case scenario? How much will Grace end up with including the $25.9 million cash payment under the base case scenario?

6. Should Drug Revolution enter into this joint venture using only the base case scenario? Explain your answer.