Two healthcare companies, CSL and Pfizer try to invent the vaccine for the Covid-19 virus. They can choose to invest Big (B) or Small (S). The payoffs are as follows: if both choose B, the payoffs are (20, 40) to CSL and Pfizer, respectively. If CSL chooses B and Pfizer S the payoffs are (10, 10) to the pair. If CSL opts for S and Pfizer B, the payoffs are 15 each. If both opt for S, the payoffs are (50, 20). If instead of making their decisions simultaneously, CSL gets to make its choice first, this is observed by Pfizer who then makes the choice accordingly. Which of the following statements is/are true? Compared to the original game, in the credible equilibrium of the new game : O CSL can be worse off or better off depending on whether its threat is credible. O Pfizer is worse off due to its second-mover advantage None of the companies is better off or worse off. O The credible equilibrium of the new game is the same as the equilibrium of the original. O CSL is better off or at least as well off due to its first-mover advantage

Two healthcare companies, CSL and Pfizer try to invent the vaccine for the Covid-19 virus. They can choose to invest Big (B) or Small (S). The payoffs are as follows: if both choose B, the payoffs are (20, 40) to CSL and Pfizer, respectively. If CSL chooses B and Pfizer S the payoffs are (10, 10) to the pair. If CSL opts for S and Pfizer B, the payoffs are 15 each. If both opt for S, the payoffs are (50, 20). If instead of making their decisions simultaneously, CSL gets to make its choice first, this is observed by Pfizer who then makes the choice accordingly. Which of the following statements is/are true? Compared to the original game, in the credible equilibrium of the new game : O CSL can be worse off or better off depending on whether its threat is credible. O Pfizer is worse off due to its second-mover advantage None of the companies is better off or worse off. O The credible equilibrium of the new game is the same as the equilibrium of the original. O CSL is better off or at least as well off due to its first-mover advantage

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter15: Decision Analysis

Section: Chapter Questions

Problem 19P: A firm has three investment alternatives. Payoffs are in thousands of dollars. a. Using the expected...

See similar textbooks

Similar questions

Following the outbreak of the Novel Coronavirus (COVID 19), CPC a pharmaceutical company is considering introducing a new vaccine unto the market to help fight the virus. This will require the injection of huge capital to the tune of GH¢40,000,000 for the purchase of the equipment for production. It will cost CPC an additional GH¢ 5,500,000 to set up the production facility and install that equipment for production. Mr. Smart, the CEO of CPC believes that the vaccine could be manufactured in a building owned by the firm and located in East Legon. This vacant building and the land can be sold for GH¢ 1,500,000 after taxes. CPC will finance the production of the vaccine (including initial working capitalinvestment) by issuing 2000,000 new common stocks at GH¢ 20 per share from its existing shareholders. A total of GH¢ 15,000,000 is expected to be raised from the rights issue. It expects to finance the remaining from the issue of a 5-year bondwith a before-tax yield to…
Following the outbreak of the Novel Coronavirus (COVID 19), CPC a pharmaceutical company is considering introducing a new vaccine unto the market to help fight the virus. This will require the injection of huge capital to the tune of GH¢40,000,000 for the purchase of the equipment for production. It will cost CPC an additional GH¢ 5,500,000 to set up the production facility and install that equipment for production. Mr. Smart, the CEO of CPC believes that the vaccine could be manufactured in a building owned by the firm and located in East Legon. This vacant building and the land can be sold for GH¢ 1,500,000 after taxes. CPC will finance the production of the vaccine (including initial working capital investment) by issuing 2000,000 new common stocks at GH¢ 20 per share from its existing shareholders. A total of GH¢ 15,000,000 is expected to be raised from the rights issue. It expects to finance the remaining from the issue of a 5-year bond with a before-tax yield to maturity (YTM)…
Following the outbreak of the Novel Coronavirus (COVID 19), CPC a pharmaceutical company is considering introducing a new vaccine unto the market to help fight the virus. This will require the injection of huge capital to the tune of GH¢40,000,000 for the purchase of the equipment for production. It will cost CPC an additional GH¢ 5,500,000 to set up the production facility and install that equipment for production. Mr. Smart, the CEO of CPC believes that the vaccine could be manufactured in a building owned by the firm and located in East Legon. This vacant building and the land can be sold for GH¢ 1,500,000 after taxes. CPC will finance the production of the vaccine (including initial working capital investment) by issuing 2000,000 new common stocks at GH¢ 20 per share from its existing shareholders. A total of GH¢ 15,000,000 is expected to be raised from the rights issue. It expects to finance the remaining from the issue of a 5-year bond with a before-tax yield to maturity (YTM)…
Following the outbreak of the Novel Coronavirus (COVID 19), CPC a pharmaceutical company is considering introducing a new vaccine unto the market to help fight the virus. This will require the injection of huge capital to the tune of GH¢40,000,000 for the purchase of the equipment for production. It will cost CPC an additional GH¢ 5,500,000 to set up the production facility and install that equipment for production. Mr. Smart, the CEO of CPC believes that the vaccine could be manufactured in a building owned by the firm and located in East Legon. This vacant building and the land can be sold for GH¢ 1,500,000 after taxes. CPC will finance the production of the vaccine (including initial working capital investment) by issuing 2000,000 new common stocks at GH¢ 20 per share from its existing shareholders. A total of GH¢ 40,000,000 is expected to be raised from the rights issue. It expects to finance the remaining investment including initial working capital investment from the issue of a…
You are an investor in a start-up company that has a patent on a new medical device. It has been approved by the FDA and is now going to marketing. The venture capital group supporting the venture believe the device will enjoy an excellent market reception, a decent reception, or a very poor reception with probabilities 0.3, 0.5, and 0.2, respectively. As an investor, you have three options available to you: (1) you can go with the market ride where the return to you in profit will be $80K, $30K, or -$25K, respectively, for the three possible market receptions. (2) You can “pool” your investment with others, sharing both the good and the bad outcomes, and your profits would be $60K, $20K, or $0K, respectively. Finally, (3) you could sell your investment for cash; the current market value of your investment is $30K. Assume you are an expected return maximizer and ignore the time value of money when answering the following questions. Which of the three options is the most…
CT Corp. is considering a project that has an up-front cost at t = 0 of P24,000. The project’s subsequent cash flows are critically dependent on whether a competitor’s product is approved by the Food and Drug Administration. If the FDA rejects the competitive product, Mano's product will have high sales and cash flows, but if the competitive product is approved, that will negatively impact Mano. There is a 75% chance that the competitive product will be rejected, in which case Mano's expected cash flows will be P8,000 at the end of each of the next seven years (t = 1 to 7). There is a 25% chance that the competitor’s product will be approved, in which case the expected cash flows will be only P600 at the end of each of the next seven years (t = 1 to 7). Mano will know for sure one year from today whether the competitor’s product has been approved. CT Corp. is considering whether to make the investment today or to wait a year to find out about the FDA’s decision. If it waits a year,…
Pfizer Inc is an American multinational pharmaceutical company. After extensive medical and marketing research, Pfizer believes it can penetrate the antiviral drugs market. It is considering two alternative products. The first is an emergency medication for coronavirus (COVID-19) for people ages 12 and older. The second is a pharmacy medicine for the same virus but for patients ages 18 and older. Both products would be introduced at a price of £8.75 per package in real terms. The emergency medication is projected to sell 2 million packages a year, whereas the pharmacy medicines would sell 4.0 million packages a year. Cash costs of production in the first year are expected to be £4.65 per package in real terms for the emergency medication. Production costs are expected to be £5.20 in real terms for pharmacy medicines. All prices and costs are expected to rise at the general inflation rate of 2 percent. Either product requires further investment. The emergency medication could be…
Parasite Engineering is developing a new product for the parasitic market that services parasites. The opportunity is estimated to be worth $1.0B measured in today’s dollars. The company will need to spend $500M today to begin the research. In five years, the company will have to make a decision as to whether to go into full scale production and begin selling the drug. At that time, the company estimates it will cost $1.5B to move forward. If the appropriate risk-free rate is 2.5%, how high must the annual volatility be to make the project worth beginning?
Which defense tactic, against hostile takeovers, is described below? In College, a couple of biochemists discover a promising new cure for brain cancer. They take this cure and start to develop it. In the process, they do a IPO to raise money. They raise $5M to continue their work. At this point, Mark, one of the founders, sends a memo to Lauren stating that they should work to be purchased by a large biotech firm like Pfizer, Roche, or Abbvie, as that would serve their corporate interests best. Soon thereafter, a Sr. Scientist they hired discovers that the chemical solution can also be used a dog hair dye. Proctor and Gamble hears of this opportunity, and immediately begins a tender offer at $25 per share. The board begins buying up shares at market price to fend off the take-over. They justify it by suggesting that Proctor and Gamble does not share the same corporate values. A. Long-range acquisition strategy B. White Knight Tactic C. Golden Parachutes D. Scorched Earth…
A drug company is deciding how much to invest in Research and Development into finding a cure for diabetes. The table below shows the company’s demand for financial capital for R&D based on its expected rates of return from selling the cure. Every investment provides an additional 4% social return: that is, an investment that pays at least a 5% return to the drug company will create at least a 9% return for society as a whole. Estimated Rate of Return_____________________ Value of R&D Projects That Provide at Least This High a Private Rate of Return to the Drug Company (measured in millions of dollars) 10% $220 9% $228 8% $238 7% $250 6% $264 5% $280 4% $298 3% $308 If the opportunity cost of financial capital for the drug company is 7%, the drug company will invest in R&D if it receives only the private benefits of this investment. Question 2 options: $308…
TrvlSafe, a manufacturer of air-freightable petcrates with imbedded chips to monitor the healthof the pet, has identified two projects that haverelatively high risk; however, they are expected tomove the company into new revenue markets. Utilizea spreadsheet to determine:(a) Which of the two projects, if either, are acceptablewhen the MARR is equal to theafter-tax WACC.(b) If the same projects are acceptable, providedthe risk factors are significant and warrant anadditional return of 2% per year above the establishedMARR.Initial After-taxProject Investment, $ Cash Flow, $/Year Life, YearsWildlife (W) −250,000 48,000 10Reptiles (R) −125,000 30,000 5 Financing will be developed using a D-E mix of 60%–40% with equity funds costing 7.5% per year. Debt financing will be developed from $10,000, 5% per year, quarterly dividend, 10-year bonds. The effective tax rate is 30% per year.
Your latest project involves the development of a death ray. Initial estimates predict that the project has a 50% chance of failure, with a potential loss of $1,000,000. However, you could hire an expert for $450,000. This is likely to reduce the chance of failure to 20% and the potential loss to $300,000. Questions: a) What is the dollar value of the net benefit of hiring the expert? Should you hire the expert? (Show all calculations for credit) b) As the skeptical accountant, do you have any concerns with this analysis? Be specific in order to receive credit