Question

You step out of your DeLorean: It is 12 years later; the company is doing very well. You're the CEO! You selected a low base salary with a very high compensation possible but based on the stock value of the company. Your financial future rests on the performance of Cureall, while your professional future rests on your relationship with the board of directors. Your two development projects, Allonex and Againerall, are supposed to be released in the next year. Againerall cost $18 Billion to develop and is expected to be the premier product for Cureall and take the company into the future. It costs $10 per treatment and the average person will need 20 semi-painful treatments per year for 10 years to be cured. You expect to cure 880M people in total; this product will be huge! Your other program, Allonex, you have just been informed is not successful at its intended disease despite its $8B development cost. It has, however, been determined that it actually cures the same disease as Againerall even though it was intended for different purposes. It costs $20 per treatment and only takes a single treatment for curing the disease. Considering: that you meet with the board of directors tomorrow your financial future depends on stock price and professional future on the board's happiness a public statement and publicity event is set for tomorrow on the release of your new cure you have a $26B development cost to overcome and 22,300 employees counting on it 12. What is the projected revenue, excluding interest effects, for Againerall and Allinonex? The projected profit (revenue less the costs of development)? 13. What do you tell the board and which treatment do you put into production to the public? Why?

Answer 1

Projected revenue for Againerall and Allinonex are as follows:

Againerall:

Revenue per patient = 10 USD * 20 treatments *10 Years = 2000 USD

Number of patient = 880 million

Total Revenue = 880,000,000 * 2000 = 176,000,000,000 = 176 billion

Allinonex

Revenue per patient = 20 USD

Number of patient = 880 million

Total Revenue = 17.6 Billion

Finding Projected Profit:

Total Development cost = Development cost of Againerall + Development cost of Allinonex = 18+8 = 26 Billion USD

1. Launching Againerall = Total Revenue - Total Development cost = 176 billion - 26 billion = 150 billion USD (Profit)

2. Launching Allinonex = Total Revenue - Total Development cost = 17.6 billion - 26 billion = (-) 8.4 bilion USD (Loss)

What do you tell the board and which treatment do you put in Production to Public? Why?

As a CEO I would try to hold professional ethics as the highest goal and would order launching Allinonex

- As it is a less costly treatment for patients

- As it cures patient in less time (One time dose)

- As the treatment is without pain compared to Againerall whose treatment is semi-painful.

I would explain to board the revenue projections and our duty to serve all stakeholders including patients and the community. I would try to draw alternate plans to cover up on the losses through any other venture by our company.