$.$ Pinder Co$.,$ Ltd$.$ is considering purchasing a patent for a recently developed drug for eczema for $$29\mathrm{.}7$ million. The patent is only valid for two years, after which Pinder Co$.,$ Ltd$.$ will not be able to compete with generic drug manufacturers. In order to produce this drug, Pinder Co$.,$ Ltd$.$ needs to spend $$9\mathrm{.}7$ million a year to use the production facilities owned by other companies, and the production cost of each pill is $$0\mathrm{.}21.$ Since Pinder Co$.,$ Ltd$.$ will borrow the existing production facilities of other companies, it can choose whether to produce the drug every year. Pinder Co$.,$ Ltd$.$ can measure the demand for the drug at the beginning of each year. If the demand is large, Pinder Co$.,$ Ltd$.$ can sell $10$ million pills in this year; if the demand is small, Pinder Co$.,$ Ltd$.$ can sell $500,000$ pills in this year. In any year, if the demand for drugs is large, the demand for drugs will remain high for the remaining validity period of the patent. In any year, if the demand for drugs is low, there may be high or low demand in the next year. The probability of high demand is $45\%,$ and the probability of low demand is $55\%.$ Due to government regulations, the price of the drug is fixed at $$5\mathrm{.}2$ per tablet regardless of the demand. The required rate of return of Pinder Co$.,$ Ltd$.$ is $10\%.$ Assume that the cash flow occurs at the end of each year, except for the initial cash flow. Based only on the above information, the decision tree method is used to calculate the present value of the option to delay drug production? $($ Round to two decimal places$)$O $$5\mathrm{.}89$ millionO $$5\mathrm{.}61$ millionO No other answers are.O $$6\mathrm{.}03$ millionO $$6\mathrm{.}22$ million

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Here are the steps to solve this problem using a decision tree approach 1 Draw the decision tree sho... View the full answer