Question: Pharmgen Corporation is a pharmaceutical company developing a new drug to fight cancer. It recently discovered a rival company is just one year away from finishing its development in a similar drug which will take away some market share if released. Pharmgen identifies two possible scenarios. The first one, which has a probability of 0.30, is if its development finishes ahead of its rival. In this case Pharmgen estimates that its profit will be $100 million. The second one, which has a probability of 0.70, is if its development finishes after its rival does. In this case, Pharmgen estimates that its profit will be $30 million only.

Management in Pharmgen Corporation has come up with three possible decisions. The first one, the base case, is to leave things the way it is. The second one is to embark on an aggressive advertising campaign which would change the profit number in the two scenarios to $120 million and $15 million respectively (after all the costs are subtracted). The third decision is to sell its current development to the rival company. In this case the overall profit is $40 million in both scenarios.

Develop a decision tree to solve the following problem:

1. What is the best decision based on the expected value criterion?
   Suppose that an additional team of researchers is available for $10 million. If employed, this team can speed up the development in such a way that the probability of finishing ahead and behind the rival company is changed to 0.50 and 0.50. Determine the best decision and answer the following.
2. a. Should Pharmgen employ the team of researchers?
   b. What is the expected value of this decision?
3. What is the best decision (leave things as is, aggressive advertizing, sell to rival) if the team is hired?
4. Suppose the cost of this team of researchers is now $15 million.

1. Should Pharmgen employ them?
2. What is the expected value of this decision?

Price: $2.99

Solution: The downloadable solution consists of 3 pages
Deliverable: Word Document