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Approximately 14 million Americans




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-DrugAbuse Sciences (DAS)-is a notable exception. It has spent $170 million to date working on a cure, but is now at a crossroads. It can either abandon its program or invest another $30 million today. Unfortunately, the firm's opportunity cost of funds is 7 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. Should DAS continue with its plan to bring the drug to market, or should it abandon the project? Explain.;Year 1 $0;Year 2 $0;Year 3 $0;Year 4 $0;Year 5 $15,000,000;Year 6 $16,500,000;Year 7 $18,150,000;Year 8 $19,965,000;Year 9 $21,961,500


Paper#31109 | Written in 18-Jul-2015

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