(A) Specifically, assume that the gross margin is $1.5 million in year 1, then increases by 10% annually through year 1, then stays constant through year 10, and finally decreases by 5% annually through year 20. Determine the Net Present Value using 8% discount.

(B) Preform sensitivity analysis with a two-way table to see how NPV varies with the length of the increase period (currently 6 years) and the length of the constant period (currently 4 years)

Use the following for this sensitivity analysis

(1) Assume the peak occurred in year three and remained constant for only one year and started to decrease for (1) year and started to decrease as reported in 1a above, what will be the NPV?

(2) Assume the peak occurred in year 5 and remained constant for only 2 years and started to decrease as reported in 1a above, what will be the NPV

(3) Based on your three NPV results would you advise this company to continue with the development of this drug?