Consider the same problem as in Example 20.4, except that now we add two additional types of uncertainty. In Example 20.4, we assumed that the gross profit per unit was fixed at $1. Now, we assume that this gross profit is distributed as T[$0.50, $1.50, $1], with this level learned on FDA approval and then fixed for the life of the product. Next, if Newdrug is approved, then there is a 10 percent chance every year that a superior product will be introduced by a competitor. If this superior product is introduced, then Newdrug’s sales are cut in half for all future years (relative to what they would have been without this superior product.) Only one superior product can be introduced in each year, but it is possible for such products to be introduced in multiple years. For example, if a superior product occurs in year 6 and in year 8, then Newdrug would have one-half of its original (Example 20.4) sales in years 6 and 7, and then one-quarter of its original sales in year 8 and beyond.

Use Monte Carlo simulation to solve for the NPV of Newdrug.