are addicted to drugs Approximately 14 alcoh The federal government estimates that these add 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 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 5 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. What is the net present value of the project? Instructions: 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? Continue Year 1 $0 Year 2 $0 Year 3 $0 Year 4 $0 Year 5 $14,300,000 Year 6 $16,500,000 Year 7 $19,200,000 Year 8 $21,900,000 Year 9 $24,800,000
are addicted to drugs Approximately 14 alcoh The federal government estimates that these add 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 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 5 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. What is the net present value of the project? Instructions: 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? Continue Year 1 $0 Year 2 $0 Year 3 $0 Year 4 $0 Year 5 $14,300,000 Year 6 $16,500,000 Year 7 $19,200,000 Year 8 $21,900,000 Year 9 $24,800,000
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.
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Transcribed Image Text: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 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 5 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.
What is the net present value of the project?
Instructions: 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?
Continue
Year 1
$0
Year 2
$0
Year 3
$0
Year 4
$0
Year 5
$14,300,000
Year 6
$16,500,000
Year 7
$19,200,000
Year 8
$21,900,000
Year 9
$24,800,000
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