Riverbed Biotech enters into a licensing agreement with Pang Pharmaceutical for a drug under development. Riverbed will

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Riverbed Biotech enters into a licensing agreement with
Pang Pharmaceutical for a drug under
development. Riverbed will receive a payment of
$7,900,000 if the drug receives regulatory approval. Based on
prior experience in the drug-approval
process, Riverbed determines it is 95% likely that
the drug will gain approval and a 5% chance of denial.
(a)
Determine the transaction price of the arrangement
for Riverbed Biotech.
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