Use the Information for the Question(s)below

question 13

Multiple Choice

Use the information for the question(s) below.
Big Cure and Little Cure are both pharmaceutical companies.Big Cure presently has a potential "blockbuster" drug before the Food and Drug Administration (FDA) waiting for approval.If approved,Big Cure's blockbuster drug will produce $1 billion in net income for Big Cure.Little Cure has 10 separate less important drugs before the FDA waiting for approval.If approved,each of Little Cure's drugs would produce $100 million in net income for Little Cure.The probability of the FDA approving a drug is 50%.
-What is the expected payoff for Little Cure's ten drugs?

• A)$500 million
• B)$100 million
• C)$1 billion
• D)$0

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Definitions:

Net Markups

The amount by which the price of a security is increased above its initial offering price to the public, after deducting any fees or commissions.

Net Markdowns

The reduction in the selling price of goods, net of any subsequent increases in price, affecting the gross margin of a retail operation.

Dollar-value LIFO Retail Method

An accounting method that adjusts inventory levels using the last-in, first-out (LIFO) principle, measured in dollar value, particularly for the retail industry.

Price Index

A statistical measure that shows changes in the price level of a basket of goods and services over a period of time.