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ABC Company scans the pharmaceutical market for drugs that are soon to lose patent protection. It analyzes the potential market for generic versions of these drugs and then determines whether to begin developing a generic manufacturing process. Recently, ABC observed that Advil a drug that improves understanding of cost accounting material, will lose patent protection on January 1 of 20X9. ABC analysts developed the following information about generic Advil:

ABC could begin selling generic Advil on January 1 of 20X9

The expected risk-free rate over the next decade is 5% and ABCs weighted average cost of corporate capital is 10%

New generic drugs have an average standard deviation of returns of 75% across all producers.

As of January 1, 20X9, the present value of cash inflows due to Advil sales is estimated to be $120 million.

Once ABC decides to produce and market generic Advil, it will take the company 18 months to install the necessary equipment and obtain the necessary approvals from the Food & Drug Administration. These costs, together with the costs of producing launch quantities of generic Advil, have a present value of $140 million as of the decision to launch the product.

What is the maximum estimated present value, as of January 1, 20X3, of the investment necessary to develop the production process for generic Advil that would lead ABC to decide to invest in development of generic Advil?

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