successful, investment in the drug will require an outlay of 1 billion dollars. The drug will likely generate annual profits of 270 million for 10 years, until the patent expires. After that, it will generate a cash flow in perpetuity equal to 24 million. The discount rate is 7%. a) If the research is successful, what is the net present value of the drug cash flows? (20 points) PV=270/(1+7%)+270/(1+7%)^2+...+270/(1+7%)^10+(24/7 %)/(1+7%)^10 =1,896.37+1.75=1,898.12 NPV 1,898.12-1,000-898.12 b) If you invest in R&D, you estimate that it will take 2 years to know whether the drug is successful or not. What is the NPV of the R&D investment? (20 points)