A company is considering a drug project that costs $1,650,000 today and is expected to generate end-of-year annual cash flows of $185,000, forever. At what discount rate would the company be indifferent between accepting or rejecting the project?
Discount rate:
= Annual cash flows/Cost of project
= $185,000/$1,650,000
= 11.21%
Hence, indifference discount rate is 11.21%
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