5B

Problem 2 What is AZ1024's rNPV from ABC Pharmaceutical's perspective? Assume a discount rate of 10% per year between years 4-7, 15% per year between years 2-4, and 20% per year between years 0-2. (Note: Your answer should be expressed in units of millions of dollars.) rNPV = $ million

where am I missing the point

Weak efficiency npv4= -310 + 0.5 * 1000 + 0.5 *0 /1.10^3 =65.65m

Moderatenpv4 = -220 + 0.8*2000 + 0.2 *0/1.10^3 =982.10

Success npv4= 4000

Npv2 = -65 + (0.05 * 4000 + 0.15 * 982.10 + 0.2*65.65)/1.15^2 = 272.54

rNPV0 = -22.5 + 0.7*272.54 + 0.3 * 0/1.2^2 = 109.98

I would suggest thinking about the following:

• Do you have any costs at the end of each weak/moderate/strong efficacy periods?

• Make sure that the division by 1.10^3 includes the 0.5*1000 too for the weak efficacy case (and similarly for the others), but it does not include the -310 since this one occurs at the beginning of the period (while the revenues occur at the end).

Once you fix the NPV4 values, the rest should work

This is verything they gave on this and the othe question