Question

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 $2 million in its first year and that this amount will grow at a rate o 2% per year or he next 7 years. Once the patent expires, other pharmaceutical companes will be able to produce the same dru a competition wi ke ydin eprofits 2 0 Whats e esent value of the new drug if the interest rate is 12% per year? The present value of the new drug is milion. (Round to three decimal places.)Help? Need to know how to punch this in excel/financial calculator as well

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Answer #1

The present value of new drug is $ 15.92 Million

The explanation is as follows:

Cash flows
Year in Million $ PVF @ 12% Present value
1 2 0.892857 1.785714
2 2.04 0.797194 1.626276
3 2.0808 0.71178 1.481072
4 2.122416 0.635518 1.348834
5 2.164864 0.567427 1.228402
6 2.208162 0.506631 1.118723
7 2.252325 0.452349 1.018837
8 2.297371 0.403883 0.92787
9 2.343319 0.36061 0.845024
10 2.390185 0.321973 0.769576
11 2.437989 0.287476 0.700864
12 2.486749 0.256675 0.638286
13 2.536484 0.229174 0.581297
14 2.587213 0.20462 0.529395
15 2.638958 0.182696 0.482128
16 2.691737 0.163122 0.439081
17 2.745571 0.145644 0.399877
Present value of New drug $15.92 Million
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