Approximately 14 million Americans are addicted to drugs and alcohol. The federal government estimates that these...

 

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Approximately 14 million Americans are addicted to drugs and alcohol. The federal government estimates that these addicts cost the U.S. economy $300 billion in medical expenses and lost productivity. Despite the enormous potential market, many biotech companies have shied away from funding research and development (R&D) initiatives to find a cure for drug and alcohol addiction. Your firm - Drug Abuse Sciences (DAS) is a notable exception. It has spent $230 million to date working on a cure, but is now at a crossroads. It can either abandon its program or invest another $35 million today. Unfortunately, the firm's opportunity cost of funds is 8 percent and it will take another five years before final approval from the Federal Drug Administration is achieved and the product is actually sold. Expected (year-end) profits from selling the drug are presented in the accompanying table. What is the net present value of the project? Instructions: Enter your response rounded to the nearest penny (two decimal places). Use a negative sign (-) where appropriate. Should DAS continue with its plan to bring the drug to market, or should it abandon the project? Continue Year 1 $0 Year 2 $0 Year 3 $0 Year 4 $0 Year 5 $13,100,000 Year 6 $15,200,000 Year 7 $18,400,000 Year 8 $21,300,000 Year 9 $22,800,000 Approximately 14 million Americans are addicted to drugs and alcohol. The federal government estimates that these addicts cost the U.S. economy $300 billion in medical expenses and lost productivity. Despite the enormous potential market, many biotech companies have shied away from funding research and development (R&D) initiatives to find a cure for drug and alcohol addiction. Your firm - Drug Abuse Sciences (DAS) is a notable exception. It has spent $230 million to date working on a cure, but is now at a crossroads. It can either abandon its program or invest another $35 million today. Unfortunately, the firm's opportunity cost of funds is 8 percent and it will take another five years before final approval from the Federal Drug Administration is achieved and the product is actually sold. Expected (year-end) profits from selling the drug are presented in the accompanying table. What is the net present value of the project? Instructions: Enter your response rounded to the nearest penny (two decimal places). Use a negative sign (-) where appropriate. Should DAS continue with its plan to bring the drug to market, or should it abandon the project? Continue Year 1 $0 Year 2 $0 Year 3 $0 Year 4 $0 Year 5 $13,100,000 Year 6 $15,200,000 Year 7 $18,400,000 Year 8 $21,300,000 Year 9 $22,800,000