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 $5 million in its first year and that this 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 10% per year?
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 $5 million in its first year and that this 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 10% per year?
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 5PB: Mason, Inc., is considering the purchase of a patent that has a cost of $85000 and an estimated...
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![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 $5 million in its first year and that this 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 10% per year?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F87be4f5d-6530-44a7-868b-5168f90aa91d%2F4563071a-d792-496b-be43-a08551c9adce%2F787n7p_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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 $5 million in its first year and that this 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 10% per year?
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