27. Decision trees (S10.3) Look again at the example in Figure 10.3. The R&D team has put forward a proposal to invest an extra $20 million in expanded phase II trials. The object is to Chapter 10 Project Analysis 297 prove that the drug can be administered by a simple inhaler rather than as a liquid. If successful, the scope of use is broadened and the upside PV increases to $1 billion. The probabilities of success are unchanged. Go to the Beyond the Page Excel spreadsheet version of Figure 10.3.

Is the extra $20 million investment worthwhile? Would your answer change if the probability of success in the phase III trials falls to 75%?

CHALLENGE PROBLEMS