Hansen Pharmaceuticals is considering the development of a potential new drug. Testing will cost $55 million today. If the tests are successful, the company will invest $180 million into production and final development starting one year from now. Following that investment, the drug should produce cash flows of $68 million per year for the next 10 years.

What is the NPV of this project, assuming the appropriate discount rate is 26% and the initial tests have a 60% chance of success?

NPV = $

2)Suppose Hansen Pharmaceuticals has the option to sell their research for $4 million in the event of an unsuccessful test. What is the value of this option to abandon?

Option to Abandon = $.

Answer rating: 100% (QA)

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