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A biotech firm must decide whether to purchase the patent to a new food additive, a low-cal starch substitute. It is estimated that the funds required to bring the additive to the market can be high as $50 million or as low as $25 million. The payoff is uncertain as well: The present value of profits could be as high as $500 million or as low as $30 million. The risk-free is rate 10%, and the standard deviation of rate of return on biotech products is 35%. The patent's life is estimated at one year.

a. In a worst-case scenario, how much is the patent worth?

b. In a best-case scenario, how much is the patent worth?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M9681405

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