I am having concerns with the soultion, apparently I've been advised that the answers I provided are somewhat incorrect.
These errors are as follow:
Major issue - you completely ignore probabilities of success each year!
FCF is incorrect after 2019 – you added Depreciation the second time
Revenues and SGA ignore probability of obsolescence
OCF is incorrect – you had to add depreciation back
FCF is incorrect after 2020 - you subtracted depreciation instead making FCF = OCF
NPV is incorrect - first, you used OCF instead of FCF, thus ignoring the investment; second, once you applied NPV function, it would already find value one year earlier, so you have to discount that element only by two years, not three. Even easier would be if you used all FCF except for 2018 as arguments of NPV function. It is disappointing that you ignored my earlier feedback
Expected NPV uses wrong probability of failure, i.e., FDA rejection, which is 90% (0.9), not 5%.
You cannot apply probabilities to FCF the way you do for two reasons: 1) Depreciation is unconditional, so its probability is always 1; and 2) you had to take into account earlier risks. E.g., probability of having revenue of 15 B in 2021 is not 0.95, but 0.4 x 0.95.
Can someone help me understand what my professor is referring too witht his assignment. I purchase this twice hoping to have a better outcome. I would like to proceed to have a refund if this can not be fixed.