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Show Full Solution , Do not use Excel Spreadsheet 2. A drug company is now working on the development of a new vaccine for a
Show Full Solution , Do not use Excel Spreadsheet
2. A drug company is now working on the development of a new vaccine for a deadly disease that is caused by an aggressive virus. At the moment, the company is in the feasibility study phase. The study has shown that the annual R & D is going to costs either $66,500 with a probability of 0.18 or $199,000 with a probability of 0.45 or $455,000. The chance of the acceptance of the vaccine by the government has been estimated as 31%.If the government accepts and buys the vaccine, the drug company will earn an annual profit of $800,000. But if the government does not buy the vaccine, the drug company will earn only $190,000 in annual profit. Assume an interest rate of 9% for this scenario. (a) Find the probability distribution of the EUAW of this project. (5 marks) (b) Calculate the expected value of the calculated EUAW? (4 marks) (c) This project may not yield a positive annual return. What is the total probability of that to happen? (1 mark) Step by Step Solution
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