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Buscar Labs is planning to invest $150,000,000 in a technology to produce a new vaccine. The vaccine will reduce significantly the amount of risk

 

Buscar Labs is planning to invest $150,000,000 in a technology to produce a new vaccine. The vaccine will reduce significantly the amount of risk involved with certain types of flu in babies. The technology will last for 25 years, however, there is some uncertainty in the size of the revenue and costs involved. The company wants a market rate of return of 12% and assuming an average annual inflation of 3% for the next 25 years. The possible outcomes for revenue and costs in real dollars (today's purchasing power) are given below. Initial Costs $150,000,000 0.5 0.1 Probability Annual Revenue 0.4 $50,000,000 $80,000,000 $120,000,000 Annual Costs $9,000,000 $12,000,000 $14,500,000 Calculate the expected present worth of this investment. Hint: It is easier if you use real dollars with real interest rate

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