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A pharmaceutical company is considering producing a generic drug. By spending 50 million today, the pharmaceutical company could begin selling its drug in one year.

A pharmaceutical company is considering producing a generic drug. By spending 50 million today, the pharmaceutical company could begin selling its drug in one year. Assume a 10% interest rate. Suppose that the generic drug will generate profits of 8 million a year until the end of time.What is the option value of waiting one year to determine the future profitability of the generic drug?

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