Understanding Present Value $-$ End of Appendix Problem

The drug company Pfizer is considering whether to invest in the development of a new cancer drug. Development will require an initial investment of $$10$ million now, and, beginning one year from now, the drug will generate annual profits of $$4$ million for three years.

a$.$ If the interest rate is $15\%,$ what is the net present value of developing the drug? Round your answer to the nearest dollar.

Net present value, $r=15\%$:$

Should Pfizer invest in the development of the new drug?

Yes

No

Pfizer will be indifferent between investing and not investing in the new drug.

b$.$ If the interest rate is $2\%,$ what is the net present value of developing the drug? Round your answer to the nearest dollar.

Net present value, $r=2\%$:$