Question
In: Finance
Orchid Biotech Company is evaluating several different development projects for experimental drugs. Although the cash flows...
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 |
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 |
a. Suppose that Orchid has a total capital budget of $60 million. How should it prioritize these projects?
b. Suppose that Orchid currently has 12
research scientists and does not anticipate being able to hire more in the near future. How should Orchid prioritize these projects?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
Orchid Biotech Company is evaluating several different development projects for experimental drugs. Although the cash flows...
Orchid Biotech Company is evaluating several different
development projects for experimental drugs. Although the cash
flows are difficult to forecast, the company has come up with the
following estimates of the initial capital requirements and NPVs
for the projects. Given a wide variety of staffing needs, the
company has also estimated the number of research scientists
required for each development project (all cost values are given
in millions of dollars). Project Number Initial Capital ($)
Number of Research Scientists NPV...
A company is evaluating two possible projects with the following cash flows. Suppose that the projects...
A company is evaluating two possible projects with the following
cash flows. Suppose that the projects are contingent. Which answer
describes the correct decision if the firm's required rate of
return is 15%?
Year
0
1
2
3
4
Project 1
-$50
$10
$15
$10
$20
Project 2
-$30
$20
$15
$30
$10
Question 16 options:
Accept both projects.
Accept project 1 and reject project 2.
Accept project 2 and reject project 1.
Reject both projects.
A company is evaluating two possible projects with the following cash flows. Suppose that the projects...
A company is evaluating two possible projects with the following
cash flows. Suppose that the projects are contingent. Which answer
describes the correct decision if the firm's required rate of
return is 12%?
Year
0
1
2
3
4
Project 1
-$50
$15
$15
$5
$5
Project 2
-$30
$20
$10
$10
$10
Intro WH Smith Company is evaluating three projects: A, B, C, with cash flows as given...
Intro
WH Smith Company is evaluating three projects: A, B, C, with
cash flows as given in the table. Each project requires an initial
investment of $96,000 and has a required return of 6%.
Year
A
B
C
1
50,000
0
20,000
2
40,000
50,000
40,000
3
20,000
50,000
40,000
4
10,000
40,000
40,000
Attempt 3/10 for 8 pts.
Part 1
What is the payback period for project A (in years)?
Submit
Attempt 1/10 for 10 pts.
Part 2
What...
You are evaluating two mutually exclusive projects. The cash flows for each are:
You are evaluating two mutually exclusive
projects. The cash flows for each are:
Project
A Project
B
Year
0 ($60,000) ($85,000)
Year
1 $20,000 $22,000
Year
2 $35,000 $25,000
Year
3 $20,000 $30,000
Year
4 $25,000 $25,000
Year
5 $15,000
Year
6 $10,000
Year
7 $10,000
Year
8 $10,000
Assume that, if needed, each project is repeatable with no
change in cash flows. Your cost of capital is 13%.
Using the replacement chain approach, which project would you
chose to...
The manager of FIRN is evaluating two mutually exclusive projects. The costs and expected cash flows...
The manager of FIRN is evaluating two mutually exclusive
projects. The costs and expected cash flows are given in the
following table. The appropriate discount rate is 11.5% per
annum.
Years
Project X
Project Y
0
-$300,000
-$350,000
1
$150,000
$150,000
2
$150,000
$150,000
3
$250,000
$200,000
4
$80,000
$200,000
5
$80,000
$200,000
IRR
42.2%
39.3%
Calculate the crossover rate/incremental IRR, at which the NPV
profiles for Projects A and B intersect.
2.Which project should be accepted based on your...
The manager of FIRN is evaluating two mutually exclusive projects. The costs and expected cash flows...
The manager of FIRN is evaluating two mutually exclusive
projects. The costs and expected cash flows are given in the
following table. The appropriate discount rate is 11.5% per
annum.
Years
Project X
Project Y
0
-$300,000
-$350,000
1
$150,000
$150,000
2
$150,000
$150,000
3
$250,000
$200,000
4
$80,000
$200,000
5
$80,000
$200,000
IRR
42.2%
39.3%
1. Calculate the projects’ net present value (NPV). Identify
which project should be accepted under the rule of NPV. Explain
your
answer.
2. What...
The most common problem encountered when evaluating projects with unconventional cash flows is multiple IRRs. In...
The most common problem encountered when evaluating projects
with unconventional cash flows is multiple IRRs. In such cases,
which method should be used?
Group of answer choices
The profitability index method
The payback period
The IRR method
The NPV method
Brian Cliff is evaluating two mutually exclusive projects (expected cash flows shown below). The...
Brian Cliff is evaluating two mutually exclusive projects
(expected cash flows shown below). The firm's cost of
capital is 12.25
percent.
Year
Project
A
Project B
0
(600)
(600)
1
200
400
2
310
260
3
400
100
NPV?
_____
_____
IRR?
_____
_____
Calculate the NPVs and IRRs for Projects A and B.
Project A's NPV is $107.02, and Project B's...
A company is considering Projects S and L, whose cash flows are shown below. These projects...
A company is considering Projects S
and L, whose cash flows are shown below. These projects are
mutually exclusive, equally risky, and not repeatable. The CEO
believes the IRR is the best selection criterion, while the CFO
advocates other methods. If the decision is made by choosing the
project with the higher IRR, how much, if any, value will be
forgone, i.e., what's the:
NPV and IRR of the chosen project(s).
What is the Payback period, discounted payback period, and...
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