Approximately 14 million Americans are addicted to drugs and alcohol. The federal government estimates that these addicts-cost the U.S. economy $300 billion in medical expenses and lost productivity. Despite the enormous potential market, many biotech companie have shied away from funding research and development (R&D) initiatives to find a cure for drug and alcohol addiction. Your firm - Drug Abuse Sciences (DAS) - is a notable exception. It has spent $200 million to date working on a cure, but is now at a crossroads. can either abandon its program or invest another $60 million today. Unfortunately, the firm's opportunity cost of funds is 5 percent an it will take another five years before final approval from the Federal Drug Administration is achieved and the product is actually sold. Expected (year-end) profits from selling the drug are presented in the accompanying table. Year 1 $0 Year 2 $0 Year 3 $0 Year 4 $0 Year 5 $12,300,000 Year 6 $14,100,000 Year 7 $16,500,000 Year 8 $18,300,000 Year 9 $21,300,000 What is the net present value of the project? rounded to the nearest whole number. Do not round intermediate calculations.
Approximately 14 million Americans are addicted to drugs and alcohol. The federal government estimates that these addicts-cost the U.S. economy $300 billion in medical expenses and lost productivity. Despite the enormous potential market, many biotech companie have shied away from funding research and development (R&D) initiatives to find a cure for drug and alcohol addiction. Your firm - Drug Abuse Sciences (DAS) - is a notable exception. It has spent $200 million to date working on a cure, but is now at a crossroads. can either abandon its program or invest another $60 million today. Unfortunately, the firm's opportunity cost of funds is 5 percent an it will take another five years before final approval from the Federal Drug Administration is achieved and the product is actually sold. Expected (year-end) profits from selling the drug are presented in the accompanying table. Year 1 $0 Year 2 $0 Year 3 $0 Year 4 $0 Year 5 $12,300,000 Year 6 $14,100,000 Year 7 $16,500,000 Year 8 $18,300,000 Year 9 $21,300,000 What is the net present value of the project? rounded to the nearest whole number. Do not round intermediate calculations.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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