### Pharmaceutical Companies' Expected Payoffs**Scenario:**Big Cure and Little Cure are both pharmaceutical companies. Big Cure currently has a potential "blockbuster" drug awaiting approval from the Food and Drug Administration (FDA). If approved, this drug will generate $1 billion in net income for Big Cure.Little Cure has ten separate, less significant drugs also awaiting FDA approval. Each of these drugs is projected to bring in $50 million in net income for Little Cure if approved. The probability of the FDA approving any given drug is 50%.**Question:**What is the expected payoff for Little Cure's ten drugs?**Options:**- A. $250 million- B. $50 million- C. $1 billion- D. $0### Analysis and Calculation:To determine the expected payoff for Little Cure's ten drugs, you should consider the approval probability and potential income for each drug.1. **Probability of Approval:** 50% (or 0.5)2. **Net Income per Approved Drug:** $50 millionFor each drug:- Expected Income = Probability of Approval × Potential Income- Expected Income = 0.5 × $50 million = $25 millionSince there are ten independent drugs:- Total Expected Payoff = Number of Drugs × Expected Income per Drug- Total Expected Payoff = 10 × $25 million = $250 million### Conclusion:The expected payoff for Little Cure’s ten drugs is **$250 million**.---**Correct Answer:**- Option A: $250 million

The expected payoff refers to the probable outcome of the event or its value. Expected payoff =…

Big Cure and Little Cure are both pharmaceutical companies. Big Cure presently has a potential "blockbuster" drug. before the Food and Drug Administration (FDA) waiting for approval. If approved, Big Cure's blockbuster drug will produce $1 billion in net income for Big Cure. Little Cure has ten separate, less important drugs before the FDA waiting for approval. If approved, each of Little Cure's drugs would produce $50 million in net income for Little Cure. The probability of the FDA approving a drug is 50%. What is the expected payoff for Little Cure's ten drugs? A. $250 million B. $50 million C. $1 billion. OD. $0

Big Cure and Little Cure are both pharmaceutical companies. Big Cure presently has a potential "blockbuster" drug. before the Food and Drug Administration (FDA) waiting for approval. If approved, Big Cure's blockbuster drug will produce $1 billion in net income for Big Cure. Little Cure has ten separate, less important drugs before the FDA waiting for approval. If approved, each of Little Cure's drugs would produce $50 million in net income for Little Cure. The probability of the FDA approving a drug is 50%. What is the expected payoff for Little Cure's ten drugs? A. $250 million B. $50 million C. $1 billion. OD. $0

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

K 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 drug's profits will be $3 million in its first year and that this amount will grow at a rate of 6% per year for the next 17 years. Once the patent expires, other pharmaceutical companies will be able to produce the same drug and competition will likely drive profits to zero. What is the present value of the new drug if the interest rate is 9% per year? million (Round to three decimal places)
← You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 19 years. You expect that the drug's profits will be $3 million in its first year and that this amount will grow at a rate of 3% per year for the next 19 years. Once the patent expires, other pharmaceutical companies will be able to produce the same drug and competition will likely drive profits to zero. What is the present value of the new drug if the interest rate is 12% per year? The present value of the new drug is $ million (Round to three decimal places.)
Big Cure and Little Cure are both pharmaceutical companies. Big Cure presently has a potential "blockbuster" drug before the Food and Drug Administration (FDA) waiting for approval. If approved, Big Cure's blockbuster drug will produce $1 billion in net income for Big Cure. Little Cure has 10 separate less important drugs before the FDA waiting for approval. If approved, each of Little Cure's drugs would produce $100 million in net income for Little Cure. The probability of the FDA approving a drug is 50%. What is the standard deviation of Big Cure's average net income for their new blockbuster drug? $0 $1 billion $100 million $500 million
Parasite Engineering is developing a new product for the parasitic market that services parasites. The opportunity is estimated to be worth $1.0B measured in today’s dollars. The company will need to spend $500M today to begin the research. In five years, the company will have to make a decision as to whether to go into full scale production and begin selling the drug. At that time, the company estimates it will cost $1.5B to move forward. If the appropriate risk-free rate is 2.5%, how high must the annual volatility be to make the project worth beginning?
A chain of take-away pizza stores is considering introducing a new line of gluten-free pizzas. Net revenue from the new line of pizzas is expected to total $500,000 per year, but 15% of this net revenue is forecast to consist of people switching from the regular pizzas to the gluten-free pizzas. How would you describe this situation in terms of the NPV analysis upon which the situation will be based. Question 1Answer a. There is a negative externality equal to $425,000 which should be included in the NPV analysis for the gluten-free pizza project. b. There is a positive externality equal to $425,000 which should be included in the NPV analysis for the gluten-free pizza project. c. There is a positive externality equal to $75,000 which should be included in the NPV analysis for the gluten-free pizza project. d. There is a negative externality equal to $75,000 which should be included in the NPV analysis for the gluten-free pizza project.
Red-Star Co. wants to sell an electrical generator for AED 165,000 in 2024. The price of this generator in the market today is AED 94,000 (according to GE company who is the producer of this generator). If the discount rate on this generator is 9.5 percent per year. Do you think the firm will make a profit if they sell this generator? What is the rate that will make the firm breakeven? Note: Profit = Revenue -cost
You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 18 years. You expect that the drug's profits will be $5 million in its first year and that this amount will grow at a rate of 6% per year for the next 18 years. Once the patent expires, other pharmaceutical companies will be able to produce the same drug and competition will likely drive profits to zero. What is the present value of the new drug if the interest rate is 10% per year?
you work dor a pharmaceutical company that has developed a new drug. the patent on the drug will last 20 years. you expect that the drug's profits will be $5 million in its first year and that this amount will grow by 2% per year for the next 20 years. once the patent expires, other pharmaceutical companies will be able to produce the same drug and competition will likely drive profits ti zero. what is the oresent value if the new drug if the interest rate is 10% per year?
You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 19 years. You expect that the drug's profits will be $4 million in its first year and that this amount will grow at a rate of 3 * 0/o per year for the next 19 years. Once the patent expires, other pharmaceutical companies will be able to produce the same drug and competition will likely drive profits to zero. What is the present value of the new drug if the interest rate is 12% per year? The present value of the new drug is $ (enter your response here) million.
On March 23, 2021, Pfizer announced that it aims to expand its vaccine business by becoming a leader in the new gene-based technology behind its successful Covid-19 shots. The following is a hypothetical scenario. Suppose the company undertakes a research and development project and uses the technology called mRNA to target other viruses and pathogens beyond the coronavirus. The project costs $500 million immediately and will generate a payoff of $ 1 billion next year if things go well, which happens with (65%+7%) probability. If things turn out not to work, however, the project will not generate any cash flows. The appropriate before-tax cost of capital for this project is 20% per year. The company has to pay taxes on the profit of this project at the rate of 21% (this low tax rate is a result of the US tax reform legislation enacted on 22 December 2017, i.e., P.L. 115-97), and the relevant marginal income tax rate of a representative investor of Pfizer is regarded as 30%. (i)…
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 drug's profits will be $4 million in its first year and that this amount will grow at a rate of 6% per year for the next 17 years. Once the patent expires, other pharmaceutical companies will be able to produce the same drug and competition will likely drive profits to zero. What is the present value of the new drug if the interest rate is 9% per year? CETTE The present value of the new drug is $8831720907 milion. (Round to three decimal places.)
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 drug's profits will be $4 million in its first year and that this amount will grow at a rate of 2% per year for the next 17 years. Once the patent expires, other pharmaceutical companies will be able to produce the same drug and competition will likely drive profits to zero. What is the present value of the new drug if the interest rate is 9% per year? The present value is $ million. (Round to two decimal places.)

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS