Question

This Question: 1 pt 10 of 10 This Quiz: 10 pts poss You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 17 years. You expect that the drugs profits will be $8 million in its first year and that this amount 17 years. Once the patent expires, other pharmaceusical companies will be able to produce the same drug and competition will likely drive profites to zero What is the present value of tie profits from the new drug if the interest rate is 6% per year? (Give your answer in the format of $XX.xM and round to the nearest thousiandth) Enter your answer in the answer box Save for Later 8

Answer 1

Discounted Cash Flow Cash Flow Discount Time mFactor (CF) | @ 6% (DF) CF) x (DF Discount factor @ 6% for year-1-1/ (1+6%). О.9434 Discount factor @ 6% for year-2-1/ (1+6%,-:0.8900 Discount factor @ 6% for year-3 1/ (1+6%)3-0.8396 Discount factor @ 6% for year-4 : 1/ (1+6%)4-0.7921 Discount factor @ 6% for year-5-1/ ( 1+6%)5-0.7473 Discount factor @ 6% for vear-62 1/ (1+6%)"-0.7050 Discount factor @ 6% for year. 7-1/ ( 1+6%). 0.665 1 Discount factor @ 6% for year-s-1/ ( 1 +6%,--0. 62 74 Discount factor @ 6% for year-5-1/( 1 +6%)9-0.59 19 Discount factor @ 6% for year-10-1/ (1+6%)10-0.5584 Discount factor @ 6% for year-1 1-1/ ( 1 +6%)11-0. 5268 Discount factor @ 6% for year-12-1/ ( 1 +6%)12-0.4970 Discount factor @ 6% for year. 13: 1/ ( 1 +6%)13-0.4688 Discount factor @ 6% for year-14-1/ ( 1+6%) 14-0.4423 Discount factor @ 6% for year-1s-1/ ( 1+6%)15-0.4173 Discount factor @ 6% for year-16-1/ (1+6%)16-0.3936 Discount factor @ 6% for year. 17s 1/ ( 1 +6%)1. 0.37 14 Discount factor @ 6% for year-18-1/ (1+6%)1.8-0.3503 Each year's cash flow is increased by 3% to arrive at cash flow for the next year. For instance, year-2's cash flow-year-Ts cash flow x 103% $8x 103%-$8.24; year-3's cash flow- year-2's cash flow x 103% $8.24 x 103%-$8.49; and so on.. $8.00 0.9434 $8.240.8900 8.49 0.8396 $8.740.7921 9.00 0.7473 $9.270.7050 $9.550.6651 $9.840.6274 $10.13 0.5919 $10.440.5584 $10.750.5268 11.070.4970 $11.410.4688 $11.750.4423 12.100.4173 12.460.3936 $12.84 0.3714 $13.22 0.3503 Net Present Value (NP 5 5 $5.83 2 2 7 $4.63 $107.62 Sum of discounted cash flow from vear-1 thru 18