A Pharmaceutical Company Is Developing a New Process for Producing

Essay

A pharmaceutical company is developing a new process for producing a virus drug. The expected cost of the effort is $15.5 M, although there is a 20% chance the development effort will fail. Should the effort succeed, the drug will be produced in a new facility that will cost $26 M. Once in the market, the drug is expected to provide a NPV sales profit of $120 M. A competitor is also working on an almost identical process, and should it finish and capture market share first, the NPV sales profit will be only $50 M. The likelihood of the competitor finishing first is estimated at 50%. What is the ECV?