26. Decision trees (S10.3) Look again at the decision tree in Figure 10.3. Expand the possible outcomes

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26. Decision trees (S10.3) Look again at the decision tree in Figure 10.3. Expand the possible outcomes as follows:

• Blockbuster: PV = $1.5 billion with 5% probability.

• Above average: PV = $700 million with 20% probability.

• Average: PV = $300 million with 40% probability.

• Below average: PV = $100 million with 25% probability.

• “Dog”: PV = $40 million with 10% probability.

Redraw the decision tree. Is the $18 million investment in phase II trials still positive NPV?

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Principles Of Corporate Finance

ISBN: 9781264080946

14th Edition

Authors: Richard Brealey, Stewart Myers, Franklin Allen, Alex Edmans

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Question Posted: Jul 31, 2024 08:00 AM

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26. Decision trees (S10.3) Look again at the decision tree in Figure 10.3. Expand the possible outcomes

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Principles Of Corporate Finance

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