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Imagine that Vioxx is projected to generate free cash flows (profits) of $2 billion dollars at the end of each year for the next 4

  1. Imagine that Vioxx is projected to generate free cash flows (profits) of $2 billion dollars at the end of each year for the next 4 years (Years 1-4) and then would be pulled from the market. Assume that Vioxx will incur legal costs of $4 billion dollars at the end of the years 3 and 4 that must be subtracted from the profit. Assume a discount rate of 5%. From a purely net present value cash flow (profit) standpoint, does it make sense to leave Vioxx on the market for the next 4 years or not? (Note: If you choose, this question can be answered conceptually without doing any NPV calculations as long as you clearly explain why your answer must be correct.)

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