Question: You are interested in developing a drug for restless leg syndrome based off of a compound you found. You estimate that the development time for

You are interested in developing a drug for restless leg syndrome based off of a compound you found. You estimate that the development time for the drug is 8 years and the cost for development is $800 million today. Based on internal dataon prior drug development projects, you estimate there is a 12.5% chance you will successfully develop this drug and it will be approved by the FDA.If the drug is approved, you will spend $1 billion at the end of development (i.e. 8 years from today) to build the factory to make the drug. You would then receive $5 billion per year for 12 years starting one year after the factory cost.

If your discount rate is 10%, what is the NPV of this project and should you start it?

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