### Pharmaceutical Companies' Expected Payoffs**Scenario:**Big Cure and Little Cure are both pharmaceutical companies. Big Cure currently has a potential "blockbuster" drug awaiting approval from the Food and Drug Administration (FDA). If approved, this drug will generate $1 billion in net income for Big Cure.Little Cure has ten separate, less significant drugs also awaiting FDA approval. Each of these drugs is projected to bring in $50 million in net income for Little Cure if approved. The probability of the FDA approving any given drug is 50%.**Question:**What is the expected payoff for Little Cure's ten drugs?**Options:**- A. $250 million- B. $50 million- C. $1 billion- D. $0### Analysis and Calculation:To determine the expected payoff for Little Cure's ten drugs, you should consider the approval probability and potential income for each drug.1. **Probability of Approval:** 50% (or 0.5)2. **Net Income per Approved Drug:** $50 millionFor each drug:- Expected Income = Probability of Approval × Potential Income- Expected Income = 0.5 × $50 million = $25 millionSince there are ten independent drugs:- Total Expected Payoff = Number of Drugs × Expected Income per Drug- Total Expected Payoff = 10 × $25 million = $250 million### Conclusion:The expected payoff for Little Cure’s ten drugs is **$250 million**.---**Correct Answer:**- Option A: $250 million

The expected payoff refers to the probable outcome of the event or its value. Expected payoff =…

Big Cure and Little Cure are both pharmaceutical companies. Big Cure presently has a potential "blockbuster" drug. before the Food and Drug Administration (FDA) waiting for approval. If approved, Big Cure's blockbuster drug will produce $1 billion in net income for Big Cure. Little Cure has ten separate, less important drugs before the FDA waiting for approval. If approved, each of Little Cure's drugs would produce $50 million in net income for Little Cure. The probability of the FDA approving a drug is 50%. What is the expected payoff for Little Cure's ten drugs? A. $250 million B. $50 million C. $1 billion. OD. $0

Big Cure and Little Cure are both pharmaceutical companies. Big Cure presently has a potential "blockbuster" drug. before the Food and Drug Administration (FDA) waiting for approval. If approved, Big Cure's blockbuster drug will produce $1 billion in net income for Big Cure. Little Cure has ten separate, less important drugs before the FDA waiting for approval. If approved, each of Little Cure's drugs would produce $50 million in net income for Little Cure. The probability of the FDA approving a drug is 50%. What is the expected payoff for Little Cure's ten drugs? A. $250 million B. $50 million C. $1 billion. OD. $0

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Following the outbreak of the Novel Coronavirus (COVID 19), CPC a pharmaceutical company is considering introducing a new vaccine unto the market to help fight the virus. This will require the injection of huge capital to the tune of GH¢40,000,000 for the purchase of the equipment for production. It will cost CPC an additional GH¢ 5,500,000 to set up the production facility and install that equipment for production. Mr. Smart, the CEO of CPC believes that the vaccine could be manufactured in a building owned by the firm and located in East Legon. This vacant building and the land can be sold for GH¢ 1,500,000 after taxes. CPC will finance the production of the vaccine (including initial working capitalinvestment) by issuing 2000,000 new common stocks at GH¢ 20 per share from its existing shareholders. A total of GH¢ 15,000,000 is expected to be raised from the rights issue. It expects to finance the remaining from the issue of a 5-year bondwith a before-tax yield to…
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Following the outbreak of the Novel Coronavirus (COVID 19), CPC a pharmaceutical companyis considering introducing a new vaccine unto the market to help fight the virus. This will requirethe injection of huge capital to the tune of GH¢40,000,000 for the purchase of the equipment forproduction. It will cost CPC an additional GH¢ 5,500,000 to set up the production facility andinstall that equipment for production. Mr. Smart, the CEO of CPC believes that the vaccine couldbe manufactured in a building owned by the firm and located in East Legon. This vacant buildingand the land can be sold for GH¢ 1,500,000 after taxes. CPC will finance the production of the
ABC Co is considering the launch of a new widget. If the product goes directly to the market, there is a 60% chance of success. For $500,000, the manager can conduct a focus group to increase the probability of success to 65%. Alternatively, the manager can pay a consulting firm $750,000 to research the market and refine the product. The consulting firm successfully launches new products 70% of the time. If the firm successfully launches the widget, the payoff will be $8 million. If the product is a failure, the NPV is $0. Calculate the expected NPV if the managers go directly to the market.
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