You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 18 years. You expect that the drug's profits will be $2.4 million in its first year and that t amount will grow at a rate of 6% per year for the next 18 years. Once the patent expires, other pharmaceutical companies will be able to produce the same drug and competition will likely drive profits to zero. What is the present value of the new drug if the interest rate is 9% per year? The present value of the new drug is $ (Round to the nearest dollar.) ...

You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 18 years. You expect that the drug's profits will be $2.4 million in its first year and that t amount will grow at a rate of 6% per year for the next 18 years. Once the patent expires, other pharmaceutical companies will be able to produce the same drug and competition will likely drive profits to zero. What is the present value of the new drug if the interest rate is 9% per year? The present value of the new drug is $ (Round to the nearest dollar.) ...

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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Correct Answer Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $343,762 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1,760,000. The cost of the machine will decline by $110,000 per year until it reaches $1,320,000, where it will remain. The required return is 16%. What is the value of the option to wait 2 years to purchases the machine? (Round answer to 2 decimal places. Do not round intermediate calculations) 63,711.41 margin of error +/- 0.02

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