A pharmaceutical company may be valued at $

$2$

$0$

$0$

$$million if it gets FDA approval for a key drug being developed, or $

$7$

$0$

$$million otherwise, and both scenarios are equally probable. The pharmaceutical company is considering investing $

$1$

$5$

$$million in a new project with $

$2$

$2$

$$million safe return next year. Using a discount rate of

$1$

$0$

$\%$

$,$

$$the NPV of the new investment opportunity is $

$5$

$$million

$($

calculated as

$-$

$1$

$5$

$+$

$2$

$2$

$/$

$1$

$.$

$1$

$=$

$5$

$)$

$.$

The pharmaceutical company neither has the $

$1$

$5$

$$million available internally, nor can it borrow the $

$1$

$5$

$$million$.$ To invest in this project, the pharmaceutical company will need to issue equity. What percentage of the company

$($

with the new investment

$)$

$$must be sold off to new shareholders to finance the $

$1$

$5$

$$million investment? $((((((($The correct answer is

$9$

$.$

$7$

$\%))))))$