Question: You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 5 years. You expect that the

You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 5 years. You expect that the drug’s profits will be $4 million in its first year and that this amount will grow at a rate of 2% per year for the next 5 years. Once the patent expires, other pharmaceutical companies will be able to produce the same drug and competition will likely drive profits to zero. What is the present value of the new drug if the interest rate is 10% per year?

Step by Step Solution

★★★★★

3.37 Rating (153 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

The present value of the new drug is 154 million The present value of the n... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Thank you in advance for your help. I have made ANOVA tables from the data I was given and I have summarized it in the table below. Are these questions asking about the P-value as well? Or do I have...

1) Perform the time trend analysis for each ratio for these two companies over three years What kind of information can be obtained based on the trend analysis? (2) Perform the peer group analysis to...

X CO produces a 16 ounce can of BR at a cost of $1.80 to make and sells for $3.00. 16 ounces of BR can be further refined into 4 small tins of CP. The chrome polish sells for $5.00 per tin. Variable...

You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 16 years. You expect that the drug's profits will be $5 million in its first year and that this...

A rich relative has bequeathed you a growing perpetuity. The first payment will occur in a year and will be $1,000. Each year after that, you will receive a payment on the anniversary of the last...

1) Your partner has offered to give you either $75,000 today or $150,000 in 9 years for investment. If the interest rate is 8% per year, which option is preferable? 2) You have a loan outstanding for...

please answer & solve You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 17 years. You expect that the drug's profits will be $2 million in its...

I'll make sure to rate you! You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 18 years. You expect that the drug's profits will be $4 million in...

You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 17 years. You expect that the drug's profits will be $4 million in its first year and that this...

How are liquidity, credit and interest rate risks related?

2 Sundial Company has assigned $710,000 in total overhead cost to four different activity cost pools. The activity requirements for its two products lines, Economy and Deluxe, are shown below. Input...

Water enters a crossflow heat exchanger (both fluids unmixed) at 16 C and flows at the rate of 7.5 kg/s to cool 10.0 kg/s of air from 120 C. For an overall heat transfer coefficient of 225 W/m K and...

In week 4, you will choose your topic and write thesis statement for the Argumentative Essay. Please select a topic and complete thesis statement. You are free to select whatever topic you like, as...

https://youtu.be/Mi1QBxVjZAw Please watch the video and share the essential points in the movie

Based on the set-up of the 3D cantilevered beam ANSYS/Workbench model, model the beam with a single 2D beam element. After boundary conditions are applied, the model will reduce to a 2 2 global mass...

SAR AnuWRE points of fixed costs are 55,400,000, the unit selling price is 5240, and the unit varable costs are $110. What is the amount of sand units required for a preto target income of $200.000 16

In Exercises 516, find the focus and directrix of the parabola with the given equation. Then graph the parabola. y 2 = 4x

The National Oceanic Research Institute is planning a research study on global warming in Antarctica. The 16-month network schedule is presented below. It is followed by budgets for each activity....

Given the following information, compute the early, late, and slack times for the project network. Which activities on the critical path have only the start or finish of the activity on the critical...

Calculate the direct cost of labor for a project team member using the following data: Hourly rate: $40/hr Hours needed: 80 Overhead rate: 40%

The Ecco Company makes electronics products for distribution throughout the world. As a member of the quality department, you are interested in the warranty claims that are made by customers who have...

The Vilmore Corporation is considering two word-processing programs for its PCs. One factor that will influence its decision is the ease of use in preparing a business report. Consequently, Jody...

Required Tasks: 1. Identify the major issues in the case. 2. Identify an appropriate statistical analysis to perform. 3. Explain why you selected the test you choose in (2). 4. State the appropriate...