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You are a research scientist with a new drug idea. Only you can know how good it is. It costs $100 million to create a lab and test it. If it pans out you get $500 million. If it does not you can resell the lab for the same amount you paid. You do not have $100 million in cash. The discount rate is 0%.

a. What is the expected NPV if there is a 50% chance of the drug succeeding?

b. If you know up front the drug works would you choose to issue debt or equity?

c. What about if you knew it wouldn't work?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92363449

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