Genenco is developing a new drug that will slow the aging process. In order succeed, two breakthroughs are needed, one to increase the potency of the drug, and the second to eliminate toxic side effects. Research to improve the drug's potency is expected to require an upfront investment of $10 million and take 2 years; the drug has a chance of success. Reducing the drug's toxicity will require a $30 million up-front investment, take 4 years, and has a 20% chance of success. If both efforts are successful, Genenco can sell the patent for the drug to a major drug company for $2.00 billion. All risk is idiosyncratic, and the risk-free rate is 6%. a. What is the NPV of launching both research efforts simultaneously? b. What is the optimal order to stage the investments? c. What is the NPV with the optimal staging? a. What is the NPV of launching both research efforts simultaneously? The NPV of launching both research efforts simultaneously is $ million, (Round to two decimal places.) View an example Etext pages Get more help Clear all Check answer Your firm is thinking of expanding. If you invest today, the expansion will generate $10 million in FCF at the end of the year, and will have a continuation value of either $151 million (if the economy improves) or $53 million (if the economy does not improve). If you wait until next year to invest, you will lose the opportunity to make $10 million in FCF but you will know the continuation value of the investment in the following year (that is, in a year from now you will know what the investment continuation value will be in the following year). Suppose the risk-free rate is 4%, and the risk-neutral probability that the economy improves is 45%. Assume the cost of expanding is the same this year or next year. a. If the cost of expanding is $82 million, should you do so today, or wait until next year to decide? b. At what cost of expanding would there be no difference between expanding now and waiting? To what profitability index does this correspond? a. If the cost of expanding is $82 million, should you do so today, or wait until next year to decide? The NPV of the expand-now option is $ million. (Round to two decimal places.)