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.
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter17: Making Decisions With Uncertainty
Section: Chapter Questions
Problem 6MC
Related questions
Question
Transcribed Image Text: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.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics: Applications, Strategies an…
Economics
ISBN:
9781305506381
Author:
James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:
Cengage Learning
Microeconomics: Principles & Policy
Economics
ISBN:
9781337794992
Author:
William J. Baumol, Alan S. Blinder, John L. Solow
Publisher:
Cengage Learning
