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
Explain why warrants are rarely exercised unless the time to maturity is small? Warrants are seldom exercised till the time to expiration is small because the market price of the

fimnancial accounting system

Payback Period It is an amount of time, mainly measured in years; it takes previously the undiscounted cash inflows from a project equal the cash outflow. It indicates the leng

What happens when a bank charges discount interest on a loan? While a bank charges discount interest on a loan the required interest payment is subtracted from the loan carries o

Components of a Callable Bond A callable bond can be thought of as the sale of a call option by the investor to the issuer as it allows the issuer to repurchase the bond from t


In bootstrapping method, on-the-run treasury issues are used as they are fairly priced, and there is no credit risk or liquidity risk involved. In practice observed yie

Ask question #Minimum ed# what is cost volume profits and what are the advantages and disadvantages?

Working capital cycle in a manufacturing business Average time raw materials are in stock (raw materials/purchases x 365 days)   Plus   Time

Credit analysis Assessment of creditworthiness depends on the examination of information relating to the new customer. This information is frequently generated by a third party