You are a manager at a pharmaceutical company, and one of your scientists has developed...
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You are a manager at a pharmaceutical company, and one of your scientists has developed a new statin that has no side effects. The initial cost to launch the drug will be $1,000,000. The revenue is projected to be produced according to one of two timelines, based on marketing. The first timeline has revenues of $100,000, $300,000, and $900,000 in years 1, 2, and 3, respectively. The second timeline has revenues of $900,000, $300,000, and $100,000 in years 1, 2, and 3, respectively.
(a) Provide the timelines for each scenario. Which timeline produces the greater ROR? Provide an explanation that describes what you observe.
(b) Assuming a hurdle rate of 15%, what is the NPV of each scenario.
(c) Determine the Benefit Cost Ratio and Present Value Ratio.
(d) Which scenario will you choose? Why?
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