Calculate the Cumulative net profit

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Question - Suppose that Moore Pharmaceuticals has discovered a potential drug breakthrough in the laboratory and needs to decide whether to go forward to conduct clinical trials and seek FDA approval to market the drug. Total R&D costs are expected to reach $700 million, and the cost of clinical trials will be about $150 million. The current market size is estimated to be 2 million people and is expected to grow at a rate of 3% each year. In the first year, Moore estimates gaining an 8% market share. This percentage is anticipated to grow by 20% each year. It is difficult to estimate beyond 5 years because new competitors are expected to be entering the market. A monthly prescription is anticipated to generate revenue of $130 while incurring variable costs of $40. 

Calculate the net present value over the first 5 years. The calculation of NPV includes the costs incurred for research ((R and D and clinical trials) and profits generated over 5 years. A discount rate of 9% is assumed for computing the net present value of the project.

Also calculate the Cumulative net profit so that the company needs to know how long it will take to recover its fixed expenses.

Reference no: EM132540309

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