Answered: Suppose that Orchid has a total capital…

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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Question

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 Project III is

(Round to two decimal places.)

The profitability index for Project IV is __________________________
(Round to two decimal places.)

The profitability index for Project V is __________________________
(Round to two decimal places.)

Based on the profitability index, how should Orchid Biotech Company prioritize these projects? (See image I sent with this)

(1) Selected 1st _____________________

(2) Selected 2nd _____________________

(3) Selected 3rd _____________________

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?

The NPV/headcount ratio for Project I is ___________________
(Round to one decimal place.)

The NPV/headcount ratio for Project II is ______________________
(Round to one decimal place.)

The NPV/headcount ratio for Project III is ______________________
(Round to one decimal place.)

The NPV/headcount ratio for Project IV is __________________
(Round to one decimal place.)

The NPV/headcount atio for Project V is ___________________
(Round to one decimal place.)

Based on the NPV/headcount ratio, how should Orchid Biotech Company prioritize these projects? (See image I sent with this)

(4) Selected first _________________________________

(5) Selected 2nd ________________________________

(6) Selected 3rd ________________________________

(7) Selected fourth ________________________________

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Suppose that Orchid has a total capital budget of $60 million. How should it prioritize these​ projects?

Suppose that Orchid has a total capital budget of $60 million. How should it prioritize these projects?