http://www.mckinsey.com/careers/interviewing/globapharm

In the quant section of this case, why isn't the correct answer 28.93 percentage points (increasing Phase II success from 40% to 68.93...% - and therefore the value of a product at Phase III from $540M to $607.5M)? That answer would result in a final likely value of $1.35B - which breaks even because it is $150M higher than the current likely final value... and the investment cost is $150M (isn't that the definition of breakeven?).

The answer key assumes that the measure of the $150M investement is the value it adds AT Phase III - and that the $150M should therefore be added to the Phase III value as deduced from the final value of $1.2B. The problem is that using the logic articulated in the answer key would result in a final AT MARKET value of $1.53B - which is significantly higher than the $1.35M that I'm thinking really represents a breakeven proposition.

Any clarifying advice would be helpful. Send me your wisdom!

Thanks! :)