Merck Decision Tree Case

NCC5010 Statistics Team Assignment 1 Team 8: headway 1: See portray 1 Question 2: See presentation 1 for the folding back of the tree. The deteriorate judgment present take account of potential bills f impression is $13.98M, therefore, Merck should freedom the medicine. Question 3: Assuming the fortune of advantage in Phase 1 is P1. The judge government issue of the licensing the medicine is 43.3*P1+(-30)*(1-P1). Merck leave behind pass the medicate as long as the expected reward is great than the election option of not licensing the drug, i.e. 43.3*P1+(-30)*(1-P1)>0 P1>0.41 Therefore, as long as the probability of success in stagecoach 1 is betwixt 0.41 and 1, the decision to license the drug remains the same. Question 4: When the launching follow is $225M, Merck leave alone still choose license the drug. The new decision tree is updated and shown in Exhibit 2. The expected present value of potential cash flow is $10.76 if the drug is licensed. However, in this case Merck would discontinue the figure 3 sports stadium if the drug passed degree 2 for weight loss only. This is because low this scenario Merck would lose more money to continue phase 3 than not to continue phase 3. Question 5: give-up the ghost to the tree in Exhibit 1, the expected payoff without the topic of whether it will pass phase 1 is 13.98.

If Merck knows the drug will fail phase 1, it will never incur the 30M personify in phase 1. Therefore, the expected payoff with the information is 43.3*0.6+0*0.4=25.98. Therefore, Merck is unforced to pay up to 25.98-13.98=$ 12M to know in throw of attack whether the! drug will pass phase 1 or not. Question 6: If Merck can guarantee the success the phase 1, the payoff will be $43.3M. Without the guarantee, the expected payoff is $13.98M. Therefore, it is willing to pay up to (43.3-13.98)=$29.32M to guarantee the success of phase 1. Question 7: According to the decision tree in Exhibit 1, there are four cases that have confirming payoffs in the end. The first case is passing phase 2 and phase 3 for depression, and...If you want to get a honest essay, suppose it on our website: OrderCustomPaper.com

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