Show and explain your work and answers in detail.

A pharmaceutical company has spent $200 million to date working on a blood pressure treatment. It has to decide whether to spend another $200 million today to get final approval from the FDA in two years. Once approved, expected profits will be $25 million for the foreseeable future. The firm's cost of capital is 10%.

1.Should the firm proceed? (Hint: use the perpetuity formula to find the value of the profit stream that starts in two years, and then discount that.)

2.Suppose many doctors do not see any advantage of using the drug over what they currently prescribe for patients and the profit stream is only $20 million per year. Should the firm proceed?

3.Going back to the original information, suppose there is a delay of a year in getting FDA approval. Should the firm proceed?

4.Going back to the original information, how much could the firm spend today and still move forward?