Bristol-Myers Squibb, a leading global pharmaceutical company, owns a patent to develop a cardiovascular disease treatment. It is considering building a new medicine production facility in Columbia, South Carolina, to produce active pharmaceutical ingredients for cardiovascular disease medicine. It is estimated that the new medicine production facility would cost 300 million to build. The new facility will produce the diabetes treatment with a 12-month course of treatment priced at $9,000. The cost to produce the medicine per treatment is $3000. The company expects that 9,000 patients per year forever will use the companys new treatment. For convenience of discussion, assume the cost to build the new medicine production facility will stay the same as well as the number of patients to get the treatments every year will stay the same forever.

However, there is fierce competition in this market. The competition causes an uncertain drug price next year. Suppose a course of the treatment will be either $14,000 per treatment or $4,000 per treatment next year with equal probability. The risk-free rate is 10% per year and that is also the cost of capital (Ignore taxes) a. What is the NPV to invest today? (sample answer: $135.56 million) b. What is the NPV of the project if postponed by one year? (sample answer: $135.56 million) c. What is the value of the option to postpone the building of the new facility by one year? (sample answer: $135.56 million)