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.



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