Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Approximately 14 million Americans are addicted to drugs and alcohol. The federal government estimates that these addicts cost the U.S. economy $300 billion in medical
Approximately 14 million Americans are addicted to drugs and alcohol. The federal government estimates that these addicts cost the U.S. economy $300 billion in medical expenses and lost productivity. Despite the enormous potential market, many biotech companies have shied away from funding research and development (R&D) initiatives to find a cure for drug and alcohol addiction. Your firm Drug Abuse Sciences (DAS) is a notable exception. It has spent $240 million to date working on a cure, but is now at a crossroads. It can either abandon its program or invest another $55 million today. Unfortunately, the firm's opportunity cost of funds is 8 percent and it will take another five years before final approval from the Federal Drug Administration is achieved and the product is actually sold. Expected (year-end) profits from selling the drug are presented in the accompanying table. Year 1 Year 2 Year 3 Year 4 $0 $0 $0 Year 5 Year 6 Year 7 Year 8 Year 9 $12,500,000 $14,000,000 $15,700,000 $18,300,000 $20,400,000 $0 What is the net present value of the project? Instruction: Enter your response rounded to the nearest penny (two decimal places). Use a negative sign (-) where appropriate. Should DAS continue with its plan to bring the drug to market, or should it abandon the project? Abandon
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started