Hansen Pharmaceuticals is considering development of a potential new drug. Testing will cost $43million today. If the tests are successful, the company will invest $140 million into production and final development starting one year from now. Following that investment, thedrug should produce cash flows of $58 million per year for the next 4years.

What is the NPV of this project, assuming the appropriate discount rate is 23% and the initial tests have a 55% chance of success?

NPV = $

Allowed attempts: 3

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Question 2

Suppose Hansen Pharmaceuticals has the option to sell their research for $4million in the event of an unsuccessful test. What is the value of this option to abandon?

Option to Abandon = $