XAT 2014 — Decision Making Question 8
Read the following case – let and answer the questions 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.
How much profit can the company expect to earn if it launches the new drug(suppose there are no additional costs)?
Answer & solution
- A
12 crores
10 crores
- C
10.5 crores
- D
11 crores
- E
11.5 crores
Sales of the company if it launches the new drug = 0.5(100) + 0.5(20) = 50 + 10 = Rs. 60 crores
Cost of launching the new drug = Rs. 50 crores
Therefore, profit that the company can expect to earn = 60 – 50 = Rs. 10 crores.
Hence, option (b).