1. Xylitor is a relatively new biotech firm, with an exciting new product that is anticipated to come to market in approximately 2 years (following regulatory approval of the product, which is Xylitors first).

A share of Xylitor is trading at $25. Xylitor has not paid a dividend yet, but anticipates initiating a dividend in 3 years (again, after approval of the product). The required return on Xylitor is 12% per year.

Assuming the project/company is considered to be a perpetuity, if earnings per share for the new product (after approval) are anticipated to be $5.00 per share, and the dividend payout will be 100% of earnings (i.e. the % earnings paid out as dividends is 100%), what is your best estimate about the markets probability of product approval?