Compute the expected profit, Financial Management

A drug company has developed a new painkiller for chronic pains, although it is doubtful whether the new drug actually has any effect. The company conducts a double-blind experiment with n = 298 randomly chosen chronic pain patients over a 6 months period. All patients receive the drug for 3 consecutive months and the placebo for 3 consecutive months, but the order of the drug/placebo treatment is unknown to them and to the administering doctor. During the two 3 months periods, patients report their level of pain on a scale from 0 to 10 (higher numbers indicate more pain). For each patient, let di be the difference in the level of pain between the placebo treatment period and the drug treatment period (such that positive values of di indicate that the patient felt better while taking the drug).

(a) The outcome of the trial is such that  1567_Compute the expected profit.png  2:9 Will the company get the drug approved by the FDA based on this study, using a two sided hypothesis test?

(b) Suppose getting the drug approved yields profits of $600 million, while conducting a study as described above costs $10 million.

(b1) If the drug company knows that the new drug has no effect, would it still make sense for the company to conduct a study in the hope of finding an effect at the 5% significance level? Compute the expected profit of such a strategy.

Posted Date: 3/9/2013 2:57:51 AM | Location : United States







Related Discussions:- Compute the expected profit, Assignment Help, Ask Question on Compute the expected profit, Get Answer, Expert's Help, Compute the expected profit Discussions

Write discussion on Compute the expected profit
Your posts are moderated
Related Questions
What is the time value of money? The meaning of time value of money is that money you hold in your hand today is worth much more than money you suppose to receive in the future

Calculate the present value and determine the npv, Financial Management. Assume today is 3 December 2009. Helen is 30 years old and has a Bachelor of Business. She is currently em

Q. How are LIBOR, TIBOR and EURIBOR determined? London Inter Bank Offered rate ( LIBOR) and is the rate of interest at which banks offer funds to other banks in marketable siz


Stabilization Policies in the AA-DD Model. Suppose the economy of Zion has reached the long run equilibrium (i.e. full employment). Now assume that a best-seller, written by Ne

what is mean by breakeven point

What are the pros and cons of commercial paper relative to bank loans for a company seeking short-term financing? Commercial paper is generally a cheaper source of short-term f

What do financial managers look for when they analyze pro forma financial statements? After the pro forma financial statements are finished, financial managers examine the

Documenting the accounting system There are 3 methods generally used to document the clients system. Narrative notes: Written description of the system Advantages:- C

If firm A has a higher debt-to-equity ratio than firm B then that means what