Question

Acme Drug Inc is developing a new cancer suppressant drug, Limisol. Following clinical trials and the granting of a patent, the Food and Drug Administration has given the company permission to sell the drug. Consider the table showing the actual and projected costs and revenue for the firm, assuming an interest rate of 0%. All values are in hundreds of thousands. Acme is currently entering year 4 of the development, so years 4, 5, and 6 are projected costs and revenue Costs R & D Patenting and FDA Clinical trials Configuring equipment Drug manufacturing Marketing and misc. Revenue Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 S40$35 $1.75 $5 $7.50 $35$35 $35 $20$20$20 $60$60 $60 Please specify all numerical answers to two decimal places What is the total value of this project's sunk costs (in hundreds of thousands)? sunk costs: $ What are the total future costs (in hundreds of thousands)? future costs: $ Considering all relevant information, it is unclear whether the company should continue manufacturing the drug the company should stop manufacturing the drug the company should continue manufacturing the drug.

Answer 1

Sunk costs are the cost that have already been incurred and cannot be recovered sunk cost = cost of R and delta + patenting and F delta A + clinical trials + configuring equipment = 40 + 35 + 1.75 + 5 + 7.5 = 89.25 Future costs = 55 in year 4 + 55 in year 5 + 55 in year 6 Assuming interest = 0 (as it is not given) FC = 165 yes, would recommended the company to continue manufacturing the product as whatever be the interest rates, per year revenue is more than the per year cost