Reference no: EM131955402

Approximately 14 million Americans are addicted to drugs and alcohol. The federal government estimates that these addicts cost the U.S. economy $300 billion in medical expenses and lost productivity. Despite the enormous potential market, many biotech companies have shied away from funding research and development (R&D) initiatives to find a cure for drug and alcohol addiction. Your firm – Drug Abuse Sciences (DAS) – is a notable exception. It has spent $185 million to date working on a cure, but is now at a crossroads. It can either abandon its program or invest another $40 million today. Unfortunately, the firm’s opportunity cost of funds is 9 percent and it will take another five years before final approval from the Federal Drug Administration is achieved and the product is actually sold. Expected (year-end) profits from selling the drug are presented in the accompanying table. Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 $0 $0 $0 $0 $10,600,000 $12,300,000 $14,100,000 $15,800,000 $18,200,000 What is the net present value of the project?