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please fill out spreadsheet 3. The National Institutes of Health (NIH) is considering funding a grant for a promising research project that aims to cure
please fill out spreadsheet 3. The National Institutes of Health (NIH) is considering funding a grant for a promising research project that aims to cure a rare disease. The time frame of the research is five years. The grant would fund the hiring of 20 scientists making $150,000 per year for five years, a one-time investment in new lab equipment of $3 million during the first year, and \$1 million per year for five years in lab supplics and materials. If successful, the cure would be available upon completion of the project, starting in Year 6. As the scientist reviewing the proposal for the NIH, you estimate that the probability of success for this project is only 2%. However, if it were successful, it would immediately cure all patients with the disease, which is fatal within one year of diagnosis, and kills approximately 15 people annually. To answer the following questions, assume the NIH uses a 7% discount rate, and is risk neutral. a. Conduct a formal cost-benefit analysis for this project, weighing the costs of funding the proposal and the benefits of a possible cure for the disease. Use the figure of $9.6 million for the value of a life, and assume that the cure will work indefinitely. Do the costs outweigh the benefits? Do you recommend funding the grant? (Note: use the attached spreadsheet to conduct the cost-benefit analysis. Assume you are conducting these calculations in Year 0, and that funding and project costs would begin in Year 1. Set up your spreadsheet in such a way that it is easy to change the value of life, discount rate and the \% of success. Useful to remember that the present discounted value for an infinite stream of payments is =$/r. Since benefits occur b. One of your colleagues argues that a 2% chance of success is possibly an overestimate the chance of the research being a success may more realistically be around 1%. If your colleague is right, how does this change the calculations you arrived at in part (a)? c. Consider alternative discount rates: i. Discount rate 4%. Do the costs outweigh the benefits? Do you recommend funding the grant? ii. Discount rate =10%. Do the costs outweigh the benefits? Do you recommend funding the grant? iii. Explain why the net benefit changes so much when you consider alternative discount rates. d. Consider alternative value of life numbers (revert to discount ratem.07): i. VSL $6 million. Do the costs outweigh the benefits? Do you recommend funding the grant? ii. VSL=\$8 million. Do the costs outweigh the benefits? Do you recommend funding the grant? iii. Explain why the net benefit changes so much when you consider alternative discount rates. e. Suppose the situation changes and the grant application in that case is now no longer being considered in isolation. Instead, it is one of 30 applications, only 10 of which can be approved based on the current NIH budget. As the scientist reviewing these applications, how would these new details impact your decision? What are the key considerations that will affect your decision to fund the project? 3. The National Institutes of Health (NIH) is considering funding a grant for a promising research project that aims to cure a rare disease. The time frame of the research is five years. The grant would fund the hiring of 20 scientists making $150,000 per year for five years, a one-time investment in new lab equipment of $3 million during the first year, and \$1 million per year for five years in lab supplics and materials. If successful, the cure would be available upon completion of the project, starting in Year 6. As the scientist reviewing the proposal for the NIH, you estimate that the probability of success for this project is only 2%. However, if it were successful, it would immediately cure all patients with the disease, which is fatal within one year of diagnosis, and kills approximately 15 people annually. To answer the following questions, assume the NIH uses a 7% discount rate, and is risk neutral. a. Conduct a formal cost-benefit analysis for this project, weighing the costs of funding the proposal and the benefits of a possible cure for the disease. Use the figure of $9.6 million for the value of a life, and assume that the cure will work indefinitely. Do the costs outweigh the benefits? Do you recommend funding the grant? (Note: use the attached spreadsheet to conduct the cost-benefit analysis. Assume you are conducting these calculations in Year 0, and that funding and project costs would begin in Year 1. Set up your spreadsheet in such a way that it is easy to change the value of life, discount rate and the \% of success. Useful to remember that the present discounted value for an infinite stream of payments is =$/r. Since benefits occur b. One of your colleagues argues that a 2% chance of success is possibly an overestimate the chance of the research being a success may more realistically be around 1%. If your colleague is right, how does this change the calculations you arrived at in part (a)? c. Consider alternative discount rates: i. Discount rate 4%. Do the costs outweigh the benefits? Do you recommend funding the grant? ii. Discount rate =10%. Do the costs outweigh the benefits? Do you recommend funding the grant? iii. Explain why the net benefit changes so much when you consider alternative discount rates. d. Consider alternative value of life numbers (revert to discount ratem.07): i. VSL $6 million. Do the costs outweigh the benefits? Do you recommend funding the grant? ii. VSL=\$8 million. Do the costs outweigh the benefits? Do you recommend funding the grant? iii. Explain why the net benefit changes so much when you consider alternative discount rates. e. Suppose the situation changes and the grant application in that case is now no longer being considered in isolation. Instead, it is one of 30 applications, only 10 of which can be approved based on the current NIH budget. As the scientist reviewing these applications, how would these new details impact your decision? What are the key considerations that will affect your decision to fund the project
please fill out spreadsheet
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