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 $195 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 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.

Year 1 - 0
Year 2 - 0
Year 3 - 0
Year 4 - 0
Year 5 - $13,100,000
Year 6 - $15,200,000
Year 7 - $16,800,000
Year 8 - $18,300,000
Year 9 - $19,900,000

Find the Net Present Value Rounded to two decimal places

Work
13,100,000(1.07)^6 + 15,200,000(1.07)^7 +
16,800,000(1.07)^8 + $18,300,000(1.07)^9 + 19,900,000(1.07)^10 - 60,000,000

The answer i got was no where close to the NPV of $203,594,235 i believe i miscalculated somewhere

You are correct that there is a miscalculation in your formula. The exponents should be the negative of the number of years from now, since it is about discounting the future cash flows to the present. The correct formula and calculation should be:

NPV = 13,100,000/(1.07)^5 + 15,200,000/(1.07)^6 + 16,800,000/(1.07)^7 + 18,300,000/(1.07)^8 + 19,900,000/(1.07)^9 - 60,000,000

= 13,100,000/(1.07)^5 + 15,200,000/(1.07)^6 + 16,800,000/(1.07)^7 + 18,300,000/(1.07)^8 + 19,900,000/(1.07)^9 - 60,000,000
= 8,257,552.39 + 9,503,970.19 + 10,213,927.73 + 10,889,514.00 + 11,630,065.25 - 60,000,000
= 50,495,029.56 - 60,000,000
= -$9,504,970.44

The Net Present Value (NPV) is -$9,504,970.44 (rounded to two decimal places).

To calculate the net present value (NPV), you need to discount each cash flow to its present value and sum them up. The discount rate in this case is 7% or 0.07.

The formula for calculating the present value of a cash flow is:
PV = CF / (1 + r)^n

Where PV is the present value, CF is the cash flow, r is the discount rate, and n is the number of years into the future.

Let's calculate the NPV step by step:

Year 1: PV = 0 / (1 + 0.07)^1 = 0
Year 2: PV = 0 / (1 + 0.07)^2 = 0
Year 3: PV = 0 / (1 + 0.07)^3 = 0
Year 4: PV = 0 / (1 + 0.07)^4 = 0
Year 5: PV = 13,100,000 / (1 + 0.07)^5 = 9,428,685.74
Year 6: PV = 15,200,000 / (1 + 0.07)^6 = 10,166,637.93
Year 7: PV = 16,800,000 / (1 + 0.07)^7 = 10,220,536.14
Year 8: PV = 18,300,000 / (1 + 0.07)^8 = 10,230,428.10
Year 9: PV = 19,900,000 / (1 + 0.07)^9 = 10,103,116.59

Now, we need to calculate the present value of the additional investment of $60 million at year 0:
PV = -60,000,000 / (1 + 0.07)^0 = -60,000,000 (since it's an initial investment)

Finally, let's sum up all the present values:
NPV = 0 + 0 + 0 + 0 + 9,428,685.74 + 10,166,637.93 + 10,220,536.14 + 10,230,428.10 + 10,103,116.59 - 60,000,000

Calculating the above equation gives an NPV of $9,149,404.50. This is not close to the expected NPV of $203,594,235. It seems there might be some mistake in the calculations. Double-check your calculations to ensure you haven't missed any steps or made any errors in the formula.

To calculate the Net Present Value (NPV) of the project, you need to consider the present value of the expected profits from selling the drug, as well as the initial investment and the opportunity cost of funds.

You correctly determined the cash flows in each year, but you made a mistake in calculating the present value of these cash flows. To calculate the present value, you need to discount the cash flows by the opportunity cost of funds, which is given as 7 percent. The formula for calculating the present value of a cash flow in a specific year is as follows:

Present Value = Cash Flow / (1 + Discount Rate)^N

Where:
- Cash Flow is the expected profit in a given year.
- Discount Rate is the opportunity cost of funds, given as 7 percent or 0.07.
- N is the number of years into the future the cash flow will be received, starting from Year 5.

Let's correct the calculation for the NPV using the correct formula:

NPV = (Year 5 Cash Flow / (1 + Discount Rate)^5) +
(Year 6 Cash Flow / (1 + Discount Rate)^6) +
(Year 7 Cash Flow / (1 + Discount Rate)^7) +
(Year 8 Cash Flow / (1 + Discount Rate)^8) +
(Year 9 Cash Flow / (1 + Discount Rate)^9) -
Initial Investment

NPV = ($13,100,000 / (1 + 0.07)^5) +
($15,200,000 / (1 + 0.07)^6) +
($16,800,000 / (1 + 0.07)^7) +
($18,300,000 / (1 + 0.07)^8) +
($19,900,000 / (1 + 0.07)^9) -
$60,000,000

Now, let's calculate the NPV using the correct formula:

NPV = ($13,100,000 / 1.4025) +
($15,200,000 / 1.4930) +
($16,800,000 / 1.5920) +
($18,300,000 / 1.7010) +
($19,900,000 / 1.8209) -
$60,000,000

NPV = $9,337,014.96 + $10,184,872.52 + $10,539,823.01 + $10,757,313.48 + $10,932,083.86 - $60,000,000
NPV = $51,751,107.83 - $60,000,000
NPV = -$8,248,892.17

Based on the correct calculation, the Net Present Value (NPV) of the project is -$8,248,892.17. This means that investing an additional $60 million today would result in a negative NPV, indicating that the project is not financially viable.