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 $230 million to date working on a cure, but
is now at a crossroads. It can either abandon its program or invest
another $50 million today. Unfortunately, the firm’s opportunity
cost of funds is 6 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 |
$12,300,000 |
$14,100,000 |
$16,500,000 |
$18,300,000 |
$21,300,000 |
What is the net present value of the project?
Instruction: Enter your response rounded to the
nearest penny (two decimal places). Use a negative sign (-) where
appropriate.
$
Should DAS continue with its plan to bring the drug to market, or
should it abandon the project?
Answer:
Net present value of the project = $4,193,745.19
Workings:
Drug Abuse Sciences (DAS) has already spent $230 million. This amount is already spent and is not relevant for analyzing to evaluate for deciding whether to continue or abandon. Irrespective of whether DAS continues or abandons the project this amount is spent and hence is sunk cost.
We observe above NPV is positive at $4,193,745.19 and hence DAS should continue with its plan to bring the drug to market
Approximately 14 million Americans are addicted to drugs and alcohol. The federal government estimates that these...
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 $230 million to date working on a cure, but...
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...
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 $245 million to date working on a cure, but...
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 $215 million to date working on a cure, but is...
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 $235 million to date working on a cure, but...
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 $240 million to date working on a cure, but...
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 $280 million to date working on a cure, but...
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 $280 million to date working on a cure, but...
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 $160 million to date working on a cure, but...
Chapter 1 Problems Saved Help Save & Exit Submit Check my work 15 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...