= 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 $60 million. How should it prioritize these projects? The profitability index for Project I is (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Project Number Initial Capital ($) Number of Research NPV ($) Scientists 1 10 2 10.1 15 3 19.0 15 4 22.0 IV 20 3 25.0 V 30 12 60.2 Drint Dana - X

= 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 $60 million. How should it prioritize these projects? The profitability index for Project I is (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Project Number Initial Capital ($) Number of Research NPV ($) Scientists 1 10 2 10.1 15 3 19.0 15 4 22.0 IV 20 3 25.0 V 30 12 60.2 Drint Dana - X

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 15E: Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided...

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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).
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 $60 million. How should it prioritize these projects? The profitability index for Project I is (Round to two decimal places.)
Orchid Biotech Company is evaluating several different development projects for experimental drugs. Although the cash flows are difficult toforecast, the company has come up with the following estimates of the initial capital requirements and NPVs for the projects: Project Number Initial Capital ($) Number of Research Scientists NPV ($) I 10 2 10.1 II 15 3 19.0 III 15 4 22.0 IV 20 3 25.0 V 30 12 60.2 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). 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.) The profitability index for Project II is __________________________ (Round to two decimal places.) The profitability index for…
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 $60 million. How should it prioritize these projects? The profitability…
Orchid Biotech Company is evaluating several different development projects for experimental drugs. Although the cash flows are difficult to forecast, the company has come up with the following estimates of the initial capital requirements and NPVs for the projects. Given a wide variety of staffing needs, the company has also estimated the number of research scientists required for each development project. (All cost values are given in millions of dollars.) Project Number I || ||| IV V Initial Capital ($) 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**
Consider the following project data. A marketing study that costs $200 will be conducted at t = 0. The best estimate now is that there is a 70 percent chance that the study will indicate potential and a 30 percent chance that it will not. If the study indicates potential, the firm will spend $500 at t = 1 to start production. If the firm starts production, the firm is confident that cash inflows will be $1,000 annually for two years (t=2 and 3). If the appropriate cost of capital is 10 percent, what is the project's expected NPV to the nearest dollar? A) $1,300 B) $923 C) $646 D) $586 E) $446
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…
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
Suppose that Linksys is considering the development of a wireless home networking appliance, called HomeNet, that will provide both the hardware and the software necessary to run an entire home from any Internet connection. Linksys's receivables are 14.2% of sales and its payables are 15.9% of COGS. Forecast the required investment in net working capital for HomeNet assuming that sales and cost of goods sold (COGS) will be as follows: 0 Year Sales COGS 1 $23,574 $9,530 The required investment in net working capital for year 0 is $ The required investment in net working capital for year 1 is $ The required investment in net working capital for year 2 is $ The required investment in net working capital for year 3 is $ The required investment in net working capital for year 4 is $ 2 $26,323 $10,641 3 $23,501 $9,501 (Round to the nearest dollar.) (Round to the nearest dollar.) (Round to the nearest dollar.) (Round to the nearest dollar.) (Round to the nearest dollar.) 4 $8,256 $3,338
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?
Two new software projects are proposed to a young, start-up company. The Alpha project will cost $320,000 to develop and is expected to have annual net cash flow of $40,000. The Beta project will cost $115,000 to develop and is expected to have annual net cash flow of $11,000. The company is very concerned about their cash flow.Calculate the payback period for each project. Which project is better from a cash flow standpoint. (Round your answers to 2 decimal places.)Payback period for project Alpha8 yearsPayback period for project Beta10.45 years