What Are the Expected Net Profits to Johnson & Johnson

Essay

What are the expected net profits to Johnson & Johnson in a pharmaceutical R&D joint venture with Amgen given the following joint profit payoffs. The joint profit payoffs are the difference between $180 and the sum of the cost realizations. Assume that the three columns are equally likely to occur, each row is equally likely to occur. Both Johnson and Johnson and Amgen can cancel the project and both will then earn $0 if the cost revelations give early warning of losses. The figures in parentheses represent costs associated with the Low, Moderate and High cost realizations, and all figures are in millions.