You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 17 years. You expect that the drug's profits will be $3 million in its first year and that this amount will grow at a rate of 6% per year for the next 17 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?

You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 17 years. You expect that the drug's profits will be $3 million in its first year and that this amount will grow at a rate of 6% per year for the next 17 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?

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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you work for a pharmaceutical comapny that developed a new drug. The patent on the drug will last 17 years . You expect the profits to be 1 million in its first year and that the amount will grow 2% for the next 17 years. the present value is if the interest rate is 11%
. Consider the problem of investing in a risky project. A project costs $500. The annual cash flow for the first year are $60 and grows at the rate of 3% annually. The risk free rate is 5%. The company WACC is 12%. . Suppose the project has an option to let you wait and decide whether to accept the project. You can invest now or next year or in two years. At the end of 2 years you either invest in the project or lose it since further deferral is not possible. The project analyst has done the calculations and has produced the binomial tree showing the cash flows from the project at future dates. Calculate the NPV of the project. p_up 0.40 $80 $70 $60 $60 $50 $40 ○ $783.21 ○ $563.45 ○ $166.67 ○ $666.67
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