Use the Table Below to Answer the Following Question(s) -Calculate the Projected Profit for the Third Year

question 37

Multiple Choice

Use the table below to answer the following question(s) .
Dresden Pharmaceuticals has decided to go ahead and start clinical trials on a potential new drug. The total R&D costs are estimated to reach around $875,000,000 with clinical trials mounting to
$145,000,000. The current market size is estimated to be around 3,000,000 and is expected to grow at 4 percent every year. The market share Dresden hopes to capture in the first year is 7 percent, and is projected to grow by 25 percent each year for the next 4 years. A monthly prescription is anticipated to generate revenue of $420 while incurring variable costs of $150. A discount rate of 8 percent is assumed. $$\begin{array} { | l | l | } \hline \text { Dresden Pharmaceuticals } & \\\hline & \\\hline \text { Data } & \\\hline & \\\hline \text { Market Size } & 3,000,000 \\\hline \text { Unit (monthly Rx) revenue (\$) } & 420 \\\hline \text { Unit (monthly Rx) cost (\$) } & 150 \\\hline \text { Discount Rate (per cent) } & 8 \\\hline & \\\hline \text { Project Costs } & \\\hline \text { R\&D (\$) } & 875,000,000 \\\hline \text { Clinical Trials (\$) } & 145,000,000 \\\hline & \\\hline\end{array}$$
-Calculate the projected profit for the third year.

• A) $31,315,200
• B) $2,373,996,000
• C) $1,149,876,000
• D) $1,494,838,800

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Definitions:

Market Interest Rate

The prevailing rate of interest determined by supply and demand in the money market that borrowers must pay to obtain funds.

Recognized Gain

The profit realized from the sale of an asset, calculated by subtracting the asset's cost from its selling price and officially recorded in financial statements.

Boot

Additional value or cash that is exchanged in a transaction to even out a trade or sale.

Book Value

The net value of an asset or a company calculated by total assets minus liabilities and intangible assets such as goodwill.