A biotech company is considering investing in an R&D project to develop a new flu vaccine....
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A biotech company is considering investing in an R&D project to develop a new flu vaccine. The project requires an initial investment of $30 million (year 0). Immediately after the initial investment, you will learn if the project is a success. The chance of success is 60%. In the case of success, the vaccine yields an expected cash flow of $56 million in one year (year 1). In the case of failure, the project ends with no future cash flow. The firm's cost of capital is 25% and the risk-free rate is 10%. (a) What is the NPV of the project? -3.12 Suppose that if the project is successful, the firm can further develop a generation-2 (G-2) vaccine in year 1. The G-2 vaccine requires an additional investment of $40 million in year 1; its chance of success is 84%, yielding an expected cash flow of $108 million in year 2 if successful. (b) What is the NPV of the G-2 vaccine in year 1? 26.0608 million dollars 22.9408 million dollars X (c) What is the total NPV of the project in year 0 with the G-2 vaccine? million dollars X A biotech company is considering investing in an R&D project to develop a new flu vaccine. The project requires an initial investment of $30 million (year 0). Immediately after the initial investment, you will learn if the project is a success. The chance of success is 60%. In the case of success, the vaccine yields an expected cash flow of $56 million in one year (year 1). In the case of failure, the project ends with no future cash flow. The firm's cost of capital is 25% and the risk-free rate is 10%. (a) What is the NPV of the project? -3.12 Suppose that if the project is successful, the firm can further develop a generation-2 (G-2) vaccine in year 1. The G-2 vaccine requires an additional investment of $40 million in year 1; its chance of success is 84%, yielding an expected cash flow of $108 million in year 2 if successful. (b) What is the NPV of the G-2 vaccine in year 1? 26.0608 million dollars 22.9408 million dollars X (c) What is the total NPV of the project in year 0 with the G-2 vaccine? million dollars X
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Data Analysis and Decision Making
ISBN: 978-0538476126
4th edition
Authors: Christian Albright, Wayne Winston, Christopher Zappe
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