A Pharmaceutical Company Has Determined That If a New Cholesterol-Reducing

question 102

Multiple Choice

A pharmaceutical company has determined that if a new cholesterol-reducing drug is manufactured and introduced to the market, the following probability distribution will describe the contribution of this drug to their profits during the next six months. The company management has decided to market this product if the expected contribution to profit for the next six months is more than $1,000,000. Based on the information given above, should the company begin manufacturing the new drug? Explain your answer.

• A) Yes, begin manufacturing.
• B) No, do not begin manufacturing.

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Definitions:

Mortgage Bonds

Bonds secured by a mortgage on a property, providing bondholders a claim against the property in case of default.

Debentures

A type of debt instrument that is not secured by physical assets or collateral but backed only by the general creditworthiness and reputation of the issuer.

Interest Expense

The cost incurred by an entity for borrowed funds, often quoted as an annual rate, and is typically deductible for tax purposes.

Sinking Fund

A reserve fund established by a company to repay debt or replace a preferred stock at a future date through periodic payments.