You are considering buying a patent giving you the exclusivr right to invest in the production of a new drug over the next 10 years

Finance Dec 10, 2020

You are considering buying a patent giving you the exclusivr right to invest in the production of a new drug over the next 10 years. the NPV of investing the production now is negative but might be positive if costs go down in the future. Which is correct?

A the value of the patentincreases with the volatility of the future demand for the product

B the value of the patent is independent with interest rates

C the value of the patent is proportional to the past investment in R&D for its development

D the value of the patent is $0

E the value of the patent is higher if there are substitutes in the market developed by competitors.

Expert Solution

Option c:

The value of patent should be proportional to the past investment in R&D for its investment. It should be considered as cash outlay which can effect the value of patent

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