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Date 07 June 2023

Due to the generous capital injection by an investor, the pharmaceutical company now has $5

million for investment opportunities. However, the capital needs to be invested cautiously in

order to maximize the company’s performance, operating capacity, and revenue-generating

abilities. Currently, there are two options:

Option 1: Acquisition

This would involve investing in a newly formed company for $5 million.

Acquiring another company could have a number of benefits. Collectively, the combined

entity could have more resources available at its disposal. This could include greater capital

and skilled staff. The improved business intelligence, as a result, could help push the business

in the right direction with better decisions being made in relation to the marketing mix. The

acquisition could also result in potential economies of scale and possible synergy gains,

especially financial synergy.

Furthermore, the target company already has excellent technical assets. As a result, the

company may not need to invest in patents in the coming year. The acquisition could also

improve the overall asset position of the company and might attract more prospective

investors.

However, if a robust integration plan to tackle operational and cultural clashes, it might affect

the overall efficiency of the operations. The acquisition could also place immediate pressure

on the current management's resources to learn to manage the new business. With the
company already reporting losses every two quarters, the additional financial strain on

resources could lead to worsening liquidity and more financial shortcomings, threatening the

company’s going concern altogether.

Option 2: Investing within the company

This would mean investing the $5 million within the company and using it to continue

running operations.

The company currently needs $180,000 per month of working capital to ensure the smooth

running of its operations. If it decides to invest this money to improve its liquidity position

and operational performance, it will still be left with $ 2840,000 (considering it is the start of

the year) to invest in the patents in the coming year.

However, this might involve the company still having to raise an additional $ 160,000 in the

coming year to acquire the patents. But the capital is still necessary for the company to

continue as a going concern.

In conclusion, while the option for acquisition may prove fruitful for the business in the long

term, the company needs to focus on maintaining enough working capital to still be able to

operate and tackle expenses. Hence, the company should use the money to continue running

operations.