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4. G.D. Sorrell is developing an anticancer drug. The project is in its preliminary stage. G.D.S must decide whether to initiate a large-scale drug test costing $1.5 million a year for two years. If the test results are positive, a $17.5 million plant to produce the drug for commer. cial trials will be built at the end of the testing period. If commercial sales of the drug meet the company's forecast for the next two years, a second, larger plant costing $50 million will be built to produce the drug in quantity. The cash flows resulting from this larger plant are expected to be $76 million for eight years after it is built. The following are the relevant cash flows associated with the three possible scenarios. a. With a cost of capital of 10%, value the research project using DCF analysis, is the project acceptable? (Assume the two plants are built.) b. Assuming that the three possible scenarios have equal probability, is the project acceptable? (Hint: Value this project as a growth option.) 4. G.D. Sorrell is developing an anticancer drug. The project is in its preliminary stage. G.D.S must decide whether to initiate a large-scale drug test costing $1.5 million a year for two years. If the test results are positive, a $17.5 million plant to produce the drug for commer. cial trials will be built at the end of the testing period. If commercial sales of the drug meet the company's forecast for the next two years, a second, larger plant costing $50 million will be built to produce the drug in quantity. The cash flows resulting from this larger plant are expected to be $76 million for eight years after it is built. The following are the relevant cash flows associated with the three possible scenarios. a. With a cost of capital of 10%, value the research project using DCF analysis, is the project acceptable? (Assume the two plants are built.) b. Assuming that the three possible scenarios have equal probability, is the project acceptable? (Hint: Value this project as a growth option.)