A biotech firm must decide whether to purchase the patent to a new food additive, a low-cal starch substitute. It is estimated that the funds required to bring the additive to the market can be as...

A biotech firm must decide whether to purchase the patent to a new food additive, a low-cal starch substitute. It is estimated that the funds required to bring the additive to the market can be as high as $50 million or as low as $25 million. The payoff is uncertain as well: The present value of profits could be as high as $500 million or as low as $30 million. The risk free rate is 10%, and the standard deviation of rate of return on biotech products is 35%. The patents life is estimated at one year

1. 
   

   In a worst case scenario, how much is the patent worth?
   

   
   


2. 
   

   In a best case scenario, how much is the patent worth?