Orchid Biotech Company is evaluating several different development projects for experimental drugs. Although the cash flows are difficult to forecast, the company has come up with the following estimates of the initial capital requirements and NPVs for the projects. Given a wide variety of staffing needs, the company has also estimated the number of research scientists required for each development project (all cost values are given in millions

Orchid Biotech Company is evaluating several different development projects for experimental drugs. Although the cash flows are difficult to forecast, the company has come up with the following estimates of the initial capital requirements and NPVs for the projects. Given a wide variety of staffing needs, the company has also estimated the number of research scientists required for each development project (all cost values are given in millions

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 12P

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Orchid Biotech Company is evaluating several different development projects for experimental drugs. Although the cash flows are difficult to forecast, the company has come up with the following estimates of the initial capital requirements and NPVS for the projects. Given a wide variety of staffing needs, the company has also estimated the number of research scientists required for each development project. (All cost values are given in millions of dollars.) Project Number V xt pages Initial Capital Number of Research Scientists (S) 10 15 MAMA 15 20 30 a. Suppose that Orchid has a total capital budget of $60 million. How should it prioritize these projects? b. Suppose that Orchid currently has 12 research scientists and does not anticipate being able to hire more in the near future How should Orchid prioritize these projects? Ask my instructor Search 2 3 4 3 12 a Suppose that Orchid has a total capital budget of $60 million. How should it prioritize these projects? The profitability…
Orchid Biotech Company is evaluating several different development projects for experimental drugs. Although the cash flows are difficult to forecast, the company has come up with the following estimates of the initial capital requirements and NPVS for the projects. Given a wide variety of staffing needs, the company has also estimated the number of research scientists required for each development project (all cost values are given in millions of dollars). Initial Capital Number of Research Project Number NPV ($) ($) Scientists 10 2 10.1 15 3 19.0 II 15 4 22.0 IV 20 3 25.0 V 30 12 60.2 a. Suppose that Orchid has a total capital budget of $60 million. How should it prioritize these projects? b. Suppose that Orchid currently has 12 research scientists and does not anticipate being able to hire more in the near future. How should Orchid prioritize these projects? a. Suppose that Orchid has a total capital budget of $60 million. How should it prioritize these projects? The profitability…
不 Orchid Biotech Company is evaluating several different development projects for experimental drugs. Although the cash flows are difficult to forecast, the company has come up with the following estimates of the initial capital requirements and NPVs for the projects: Given a wide variety of staffing needs, the company has also estimated the number of research scientists required for each development project (all cost values are given in millions of dollars). a. Suppose that Orchid has a total capital budget of $60million. How should it prioritize these projects? b. Suppose that Orchid currently has 12research scientists and does not anticipate being able to hire more in the near future. How should Orchid prioritize these projects? a. Suppose that Orchid has a total capital budget of $60 million. How should it prioritize these projects? The profitability index for Project I is (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a…
Orchid Biotech Company is evaluating several different development projects for experimental drugs. Although the cash flows are difficult to forecast, the company has come up with the following estimates of the initial capital requirements and NPVs for the projects: Given a wide variety of staffing needs, the company has also estimated the number of research scientists required for each development project (all cost values are given in millions of dollars). a. Suppose that Orchid has a total capital budget of $60million. How should it prioritize these projects? b. Suppose that Orchid currently has 12research scientists and does not anticipate being able to hire more in the near future. How should Orchid prioritize these projects? a. Suppose that Orchid has a total capital budget of $60 million. How should it prioritize these projects? The profitability index for Project I is (Round to two decimal places.)
Orchid Biotech Company is evaluating several different development projects for experimental drugs. Although the cash flows are difficult to forecast, the company has come up with the following estimates of the initial capital requirements and NPVs for the projects. Given a wide variety of staffing needs, the company has also estimated the number of research scientists required for each development project. (All cost values are given in millions of dollars.) Project Number I || ||| IV V Initial Capital ($) 10 15 15 20 30 Number of Research Scientists 2 3 4 3 12 NPV ($) 10.1 19.0 22.0 25.0 60.2 a. Suppose that Orchid has a total capital budget of $60 million. How should it prioritize these projects? b. Suppose that Orchid currently has 12 research scientists and does not anticipate being able to hire more in the near future. How should Orchid prioritize these projects? a. Suppose that Orchid has a total capital budget of $60 million. How should it prioritize these projects? The…
5. Orchid Biotech Company is evaluating several different development projects for experimental drugs. Although the cash flows are difficult to forecast, the company has come up with the following estimates of the initial capital requirements and NPVs for the projects: Given a wide variety of staffing needs, the company has also estimated the number of research scientists required for each development project (all cost values are given in millions of dollars). a. Suppose that Orchid has a total capital budget of $60 million. How should it prioritize these projects? *round to two decimal places** b. Suppose that Orchid currently has 12 research scientists and does not anticipate being able to hire more in the near future. How should Orchid prioritize these projects? **round to once decimal place**
Orchid Biotech Company is evaluating several development projects for experimental drugs. Although the cash flows are difficult to forecast, the company has come up with the following estimates of the initial capital requirements and the PV of future cash flows for the projects (all cost values are given in millions of dollars). Project Number 1 || ||| IV V O A. V, IV, I O B. V, II, III O C. IV, III, II, I Initial Capital O D. V, III, II $10 15 15 20 30 PV(CF) $10.1 19.0 Suppose that Orchid has a total capital budget of $60 million. How should it prioritize these projects based on the profitability index? In the following choices, the priority of the projects is from high to low. 22.0 25.0 60.2
Bauer Industries is an automobile manufacturer. Management is currently evaluating a proposal to build a plant that will manufacture lightweight trucks. Bauer plans to use a cost of capital of 11.9% to evaluate this project. Based on extensive research, it has prepared the following incremental free cash flow projections (in millions of dollars): a. For this base-case scenario, what is the NPV of the plant to manufacture lightweight trucks? b. Based on input from the marketing department, Bauer is uncertain about its revenue forecast. In particular, management would like to examine the sensitivity of the NPV to the revenue assumptions. What is the NPV of this project if revenues are 10% higher than forecast? What is the NPV if revenues are 10% lower than forecast? c. Rather than assuming that cash flows for this project are constant, management would like to explore the sensitivity of its analysis to possible growth in revenues and operating expenses. Specifically, management would…
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: Use the information from the previous exercise to calculate the internal rate of return on both projects and make a recommendation on which one to accept. For further instructions on internal rate of return in Excel, see Appendix C.
Alfredo Auto Parts is considering investing in a new forming line for grille assemblies. For a five-year study period, the cash flows for two separate designs are shown below. Create a spreadsheet that will calculate the present worths for each project for a variable ALARR. Through trial and error, establish the ALARR at which the present worths of the two projects are exactly the same. Cash Flows for Grille Assembly Project Automated Line Manual Line Disburse- Net Cash | Disburse- Net Cash Year | ments | Receipts | Flow ments | Receipts Flow 0 [e1 500000 [€ 0 [-€1 500 000 [€1 000 000 | € o[ -€1 000 000 1 50 000 | 300 000 250000 [ 20000 [ 200 000 180 000 2 60 000 | 300 000 240000 [ 25000 [ 200 000 175 000 3 70 000 | 300 000 230 000 30 000 | 200 000 170 000 4 80000 [ 300 000 220 000 35000 | 200 000 165 000 5 90 000 [ 800 000 710000 40000 [ 200 000 160 000
Russell Trent was recently tasked with evaluating projects for Stan's No Touch Car Wash. The company recently decided to use NPV as its primary criterion for approving projects. To be selected, a project must have a positive NPV. Russell is currently evaluating a project with the following estimated investment requirements ($ millions) by year (starting in year 0): \ Investment Year Investment 0 16 1 10.1 2 12.5 The estimated revenues ($ millions) from the project, expected to begin at time 2, are given in the table below: Investment Year Investment 0 11.1 1 11.3 2 8.2 3 14.3 4 11.9 To account for the different risk characteristics throughout the project's life, Russell has determined that a hurdle rate of 23% should be used beginning at time 0, while 37% should be used beginning in period 4. Determine the NPV for the project. NPV=