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16 February, 08:12

Carla Vista Pharmaceuticals entered into a licensing agreement with Zenith Lab for a new drug under development. Carla Vista will receive $8450000 if the new drug receives FDA approval. Based on prior approval, Carla Vista determines that it is 90% likely that the drug will gain approval. The transaction price of this arrangement should be $0 until approval is received. a.$7605000. b.$8450000. c.$845000.

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  1. 16 February, 11:59
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    Depends on the valuation method, it can be either:

    A) $7,605,000

    B) $8,450,000

    Explanation:

    A) If Carla Vista uses the "expected value method", then the transaction price of this arrangement should = $8,450,000 x 90% = $7,605,000

    B) If Carla Vista uses the "most likely method", then the transaction price of this arrangement should = $8,450,000
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