Question content area top Part 1 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 first year and that this amount will grow at a rate of 5 per year for the next 17 years Once the patent expires, other pharmaceutical companies can 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

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Question: Question content area top Part 1 You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last

Question content area top

Part 1

You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last

years. You expect that the drug's profits will be

million in its first year and that this amount will grow at a rate of

per year for the next

years. Once the patent expires, other pharmaceutical companies can 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?

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