Use the Information Below to Answer the Following Questions)

question 44

Multiple Choice

Use the information below to answer the following questions) . 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:

Asset Account

An account that tracks resources owned or controlled by a business or individual which have economic value.

Unearned Items

Income received for goods not yet delivered or services not yet provided, considered a liability until the goods or services are delivered.

Adjusting Journal Entry

Adjusting journal entries are made in the accounting records to correct or allocate transactions in the appropriate accounting period for accurate financial reporting.

Expense

An outflow of assets or incurring of liabilities resulting from a company's operations, intended to generate revenue.