A pharmaceutical company is considering investing in the development of a new drug. The company stands to

Question:

A pharmaceutical company is considering investing in the development of a new drug. The company stands to make a lot of profit if the drug is successful. However, there is some risk that the drug will not be approved by government regulators. If this happens, the company will lose its entire investment. Advise the company how to take this risk into account as managers evaluate whether to invest.