Question: The drug company Pfizer is considering whether to invest in the development of a new cancer drug. Development will require an initial investment of $10 million now; beginning one year from now, the drug will generate annual profits of $4 million for three years.
a. If the interest rate is 12%, should Pfizer invest in the development of the new drug? Why or why not?
b. If the interest rate is 8%, should Pfizer invest in the development of the new drug? Why or why not?