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 – Drug Abuse Sciences (DAS) – is a notable exception. It has spent $200 million to date working on a cure, but is now at a crossroads. It can either abandon its program or invest another $60 million today. Unfortunately, the firm’s opportunity cost of funds is 5 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.
Year 1 $0
Year 2 $0
Year 3 $0
Year 4 $0
Year 5 $12,000,000
Year 6 $13,400,000
Year 7 $17,200,000
Year 8 $20,700,000
Year 9 $22,450,000
What is the net present value of the project? Instruction: Round your answer to the nearest penny (2 decimal places). Use a negative sign (-) where appropriate.