44 146 153 million 1096 2 the project is still

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Unformatted text preview: on as follows: NPV = −38 + .44 × 146 = $15.3 million (1.096) 2 The project is still positive but NPV has fallen, showing that the extra $20 million investment is not worthwhile. Decreasing the probability of phase III success to 75% results in the following calculations: Resulting NPV with 130 investment; Weighted Prob. of NPV with r = 9.6% NPV outcome abandonment 110 25% 440 440 20 50% 41 41 0 25% 0 ‐73 130 Most likely downside PV if successful 1000 300 100 Probability of Phase III success 75% 75% 75% Phase III results Upside 130 = $9.75 million (1.096) 2 So the R&D proposal is still not worthwhile. NPV = −38 + .44 ×...
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This document was uploaded on 02/02/2014.

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