VOTD Pharmaceuticals is considering the mass production of a new sleeping

pill. Neely O'Hara, VOTD's financial analyst, has gathered all the available

information fron the finance, production, advertising, and marketing departments

and has estimated that the yearly net incremental cash flows will be $$298,500.$

She estimates the initial investment for this project will be $$2$ million. The pills

are expected to be marketable for $10$ years, and Neely does not expect that any of

the investment costs will be recouped at the end of the $10-$year period. VOTD's

required rate of return for average$-$risk projects is $8$ percent. Two pereent is added

to the required rate of return for high$-$risk projects.

a$.$ Calculate the net present value of the project if VOTD management considers

it to be average risk.

b$.$ A lot of uncertainty is associated with the potential competition of new

drugs that VOTD's competitors might introduce. Because of this uncertainty,

VOTD management has changed the classification of this project to high risk.

Calculate the net present value at the risk$-$adjusted discount rate. Show all work