### XAT 2014 Question 36

Instructions

Read the following case - let and answer the question that follow

Krishna Reddy was the head of a pharmaceutical company that was trying to develop a new product. Reddy, along with his friend Prabhakar Rao, assessed that such products had mixed success. Reddy and Rao realized that if a new product (a drug) was a success, it may result in sales of 100 crores but if it is unsuccessful, the sales may be only 20 crores. They further assessed that a new drug was likely to be successful 50% of times. Cost of launching the new drug was likely to be 50 crores.

Question 36

# How much profit can the company expect to earn if it launches the new drug(suppose there are no additional costs)?

Solution

The total cost incurred =50 Cr

The earning = 100$$\times\$$1/2 + 20$$\times\$$1/2=60 Cr.

Hence the net profit=10 Cr.