Approximately 14 million Americans are addicted to drugs and alcohol. The

Approximately 14 million Americans are addicted to drugs and alcohol. The
federal government estimates that these addicts cost the U.S. economy $300
billion in medical expenses and lost productivity. Despite the enormous potential
market, many biotech companies have shied away from funding research and
development (R&D) initiatives to find a cure for drug and alcohol addiction.
Your firm—DrugAbuse Sciences (DAS)—is a notable exception. It has spent
$170 million to date working on a cure, but is now at a crossroads. It can either
abandon its program or invest another $30 million today. Unfortunately, the
firm’s opportunity cost of funds is 7 percent and it will take another five years
before final approval from the Federal Drug Administration is achieved and the
product is actually sold. Expected (year-end) profits from selling the drug are
presented in the accompanying table. Should DAS continue with its plan to
bring the drug to market, or should it abandon the project? Explain.

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