hw5soln - 2 Should a pharmaceutical firm invest in the...

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2. Should a pharmaceutical firm invest in the following project? For 10 years, the nominal costs will be $1 million a year and in this period, there will be no revenues. From year 11 to 20, the nominal revenues will be $2 million per year and the costs will be $250,000. Assume that the discount rate is 3%. Year Costs Revenues Total Discounted Value 1 1,000,000 $ - $ (1,000,000) $ (970,874) $ 2 1,000,000 $ - $ (1,000,000) $ (942,596) $ 3 1,000,000 $ - $ (1,000,000) $ (915,142) $ 4 1,000,000 $ - $ (1,000,000) $ (888,487) $ 5 1,000,000 $ - $ (1,000,000) $ (862,609) $ 6 1,000,000 $ - $ (1,000,000) $ (837,484) $ 7 1,000,000 $ - $ (1,000,000) $ (813,092) $ 8 1,000,000 $ - $ (1,000,000) $ (789,409) $ 9 1,000,000 $ - $ (1,000,000) $ (766,417) $ 10 1,000,000 $ - $ (1,000,000) $ (744,094) $ 11 250,000 $ 2,000,000 $ 1,750,000 $ 1,264,237 $ 12 250,000 $ 2,000,000 $ 1,750,000 $ 1,227,415 $ 13 250,000 $ 2,000,000 $ 1,750,000 $ 1,191,665 $ 14 250,000 $ 2,000,000 $ 1,750,000 $ 1,156,956 $ 15 250,000 $ 2,000,000 $ 1,750,000 $ 1,123,258 $ 16 250,000 $ 2,000,000 $ 1,750,000 $ 1,090,542 $ 17 250,000 $ 2,000,000 $ 1,750,000 $ 1,058,779 $ 18 250,000 $ 2,000,000 $ 1,750,000 $ 1,027,941 $ 19 250,000 $ 2,000,000 $ 1,750,000 $ 998,001 $ 20 250,000 $ 2,000,000 $ 1,750,000 $ 968,933
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