You work for a pharmaceutical company that has developed a new drug.The patent on the drug will last for 17 years.You expect that the drug will produce cash flows of $10 million in its first year and that this amount will grow at a rate of 4% per year for the next 17 years.Once the patent expires,other pharmaceutical companies will be able to produce generic equivalents of your drug and competition will drive any future profits to zero.If the interest rate is 12% per year,then the present value of producing this drug is closest to:
A)$71 million
B)$90 million
C)$170 million
D)$105 million

Question

Quizplus · Accepted Answer

B)$10 × 11ea7cce_3be1_278f_928c_ab0f7b45fe42_TB1626_11 11ea7cce_3be1_4ea0_928c_2fc462e47bc1_TB1626_11 = $89.53 million

You Work for a Pharmaceutical Company That Has Developed a New