Question
Cee-ing Eye Corp. needs to decide whether to invest in research on a new drug that would instantly and painlessly cure most eyesight problems. Investing
Cee-ing Eye Corp. needs to decide whether to invest in research on a new drug that would instantly and painlessly cure most eyesight problems. Investing in research on the drug is estimated to cost $12 million to be paid immediately. If it decides to invest in research, the probability of technical success is 0.23. If Cee-ing Eye Corp. has technical success, it can choose between a basic or aggressive marketing strategy. A basic marketing strategy will cost the firm $1 million, and an aggressive marketing strategy will cost $7 million. The cost of the marketing strategy will be incurred in year 4. An aggressive marketing strategy has a 0.8 probability of success, and a basic marketing strategy has a 0.69 probability of success.The net cash flow given marketing and technical success will be $100 million in year 5. The net cash flow with no marketing success but with technical success will be $13 million in year 5. If there is no technical success, there is no other cash flow expect for the immediate cost of investing in research. If Cee-ing Eye decides not to invest in research, its net present worth (NPW) equals $0. You should assume the cash flow is $0 in each year except for years 0, 4, and 5. Cee-ing Eye Corp. will choose the alternative with the largest expected NPW, and its MARR is 16%. What is the expected NPW of the optimal alternative?
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