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Determine the net present value of the drug cash flows

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Reference no: EM133123438

Question - You are the CFO of a drug company, and you must decide whether to invest 70M dollars in R&D for a new drug. If you conduct the R&D, you believe that there is a 10% chance that the research will produce a useful drug. If the research is successful, investment in the drug will require an outlay of 1.5 billion dollars. The drug will likely generate annual profits of 300 million for 10 years until the patent expires. After that, it will generate a cash flow in perpetuity equal to 30 million. The discount rate is 10%. If the research is successful, determine the net present value of the drug cash flows?

Reference no: EM133123438

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