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XYZ Virology entered into a distribution agreement with KLM Medicare for a new experimental drug to treat COVID-19. XYZ will receive $6,750,000 if the new
XYZ Virology entered into a distribution agreement with KLM Medicare for a new experimental drug to treat COVID-19. XYZ will receive $6,750,000 if the new drug receives Ministry of Health approval for registration. The agreement also includes a bonus payment of $500,000 if approval is received within one month of contract signing. The bonus amount decreases by 5% for everyone month delay in receipt of approval. Based on prior approval.XYZ determines that it is an 80%, 15% and 5% likelihood that the drug will receive approval within one month, two months and three months respectively. Using the probability weighted method, the transaction price of this arrangement should be . $7.243.750 b. $5.737.500. c. $0 until approval is received d. $6.750,000 e. $7.250,000
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