QUESTION $4(14$ marks$)$

Medical $24$ Ltd $($Medical $24)$ is a large pharmaceutical manufacturer listed on the

main board of the Johannesburg Stock Exchange $($JSE$).$

The entity has a $31$ July financial yearend.

Medical $24$s board of directors is currently considering whether it should invest in the

development and manufacturing of a new medicine $$ Spamaleute.

Spamaleute has a $64\%$ chance of succeeding. The profits to be generated from its

future sales, should Medical $24$ succeed in promoting the medicine to the market, is

estimated to deliver a return of $68\%.$ Should the market be indifferent to the product,

it will deliver a $43\%$ return on the initial investment amount. The chance of this scenario

occurring is $35\%.$ There is however a chance of Spamaleute failing in the market. In

such a case, the future profits will only exceed the initial investment amount by $23\%.$

Assume these are the only possible outcomes.

REQUIRED:

Assist Medical $24$ Ltd by determining the risk attached to investing in the development

and manufacturing of Spamaleute.

$(14$ marks$)$