Use the Information Below to Answer the Following Question(s)

question 3

Multiple Choice

Use the information below to answer the following question(s) . Below is a decision tree illustrating the R&D process for a new drug. Let us assume that if market is large, payoff is lognormally distributed with a mean of $4,900 million and a standard deviation of $1,000 million; if market is medium, payoff is lognormally distributed with a mean of $2,500 million and a standard deviation of $500 million; and if market is small, payoff is normally distributed with a mean of $1,800 million and standard deviation of
$200 million. Let us also assume that the cost of clinical trials is uncertain and estimates are modeled with a triangular distribution with a minimum of -$700 million, a most likely value of - $550 million, and a maximum of -$500 million. Use 10,000 trials and a random seed of 1.
-What is the probability that the drug will not reach the market? [Hint: Choose the approximate value.]

• A) 0.95
• B) 0.89
• C) 0.77
• D) 0.82

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Definitions:

Off-Balance Sheet Leases

Leasing arrangements that do not appear on a company's balance sheet as an asset or liability, often used to keep the debt-to-equity ratio low.

Income Statement

A report that outlines a company's financial results, including income, expenses, and profits, during a particular period of accounting.

Required Note Disclosures

Notes in financial statements providing additional context, explanations, and details about reported figures, helping users better understand the financial conditions and results.

Statement Of Stockholders' Equity

A financial statement that shows changes in the ownership interest of a company’s shareholders over a reporting period.