Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Microeconomics Expert

Acron is a large pharmaceutical company. At the current time, Acron is trying to decide whether one of its new drugs, Tivra, is worth pursuing. Tivra is in the final stages of development and will be ready to enter the market in year one. The final cost of development, to be incurred at the beginning of year one, is $8.9 million. Acron estimates that the demand for Tivra will gradually grow and then decline over its useful lifetime of 20 years. Specifically, the company expects the annual profit (attributable to Tivra) to be $1.1 million in year 1. Annual Tivra profit is expected to increase at an annual rate of 10% for 7 years (through year 8) and finally to decrease at an annual rate of 4% through year 20. Acron wants to develop a spreadsheet model of its 20-year cash flows, assuming its cash flows, other than the initial development cost, are incurred at the ends of the respective years. Using an annual discount rate of 11% for the purpose of calculating NPV, the drug company wants to answer the following problems:"

a) Based on these assumptions, is the drug worth pursuing or should Acron abandon it now and avoid the $8.9 million development cost? describe your answer. They should pursue the drug because they will end up making a profit.

b) How do changes in the model inputs change the answer the company's decision? Specifically, what if the rate of profit increase varies between 2% and 15% (in 1% increments) and the discount rate ranges from 10% to 20% (in 1% increments)? Identify (shade/highlight) circumstances where this project should move forward.

c) Based on the original assumptions, what is the internal rate of return associated with this drug project?
i) Estimate the internal rate of return from the table in part b. IRR is approximately ________________%
ii) Using the IRR formula or GoalSeek, find the exact IRR to two decimal places. IRR=________________%

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M939207

Have any Question? 


Related Questions in Microeconomics

Assignmentoverviewthe incidence of fraud in the news has

Assignment Overview The incidence of fraud in the news has become more common in recent years. As the accounting profession becomes more aware of fraud schemes, it seems that the criminals who perpetrate them have become ...

Assignment-money and pricesjaydeethe organizations

Assignment-Money and Prices Jaydee The organization's strategic plan you wrote about in Week 2 calls for an aggressive growth plan, requiring investment in facilities and equipment, growth in productivity, and labor over ...

Assignmentinstructions the topic of the research paper will

Assignment Instructions: The topic of the research paper will be any disease or condition of the body. The paper must include a thorough description of the disease/condition; current statistics of those affected - epidem ...

Short-run economic fluctuationsplease have by 800 pm west

Short-Run Economic Fluctuations Please have by 8:00 pm west coast time cailfornia time 12/13/2016. Plagrism free, orignal work, and refs. APA format double space. please ask questions right away please dont wait to the l ...

Assignment1in your own words please define describe and use

Assignment 1. IN YOUR OWN WORDS, please define, describe and use an example for the following term (see below). The term (including example) should be no more than 50 words.The following rubric is used to assess each ter ...

Economic term paperempirical project the research project

Economic Term Paper Empirical Project The research project should be about 10 pages and should explain your data collection, model, and findings. The project (due by the final exam date) is worth 30% of your final grade. ...

Question 1 a scatter diagram is useful to determine if a

Question 1. A scatter diagram is useful to determine if a relationship exists between two variables. True False Question 2. Consider the following gasoline data: Quarter 1, Year 1, Year 2 1, 150, 156 2, 140, 148 3, 185, ...

Question 1consider the market for a course of antibiotics

Question 1. Consider the market for a course of antibiotics. Suppose the supply of antibiotics follows P = 5 + 2Qs and the demand follows P = 20 - 2Q D . Here, Q represents antibiotics, denominated in millions of units. ...

Microeconomics assignmentquestion 1 - read attachment

MICROECONOMICS ASSIGNMENT Question 1 - Read Attachment 1 Answer the following questions. Use diagrams where appropriate. [Assume that the Australian grape and wine industries are perfectly competitive markets]: Use deman ...

Microeconomicsdiscussion forumnote the video has closed

Microeconomics DISCUSSION Forum Note: The video has Closed Captioning. To activate it, start the video, mouse over the bottom of the video and click on the CC icon, then select from the menu. Note: The video has Closed C ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen