#3. (10pts) Orchid Biotech The the projects. research your work company has Comp
ID: 2785865 • Letter: #
Question
#3. (10pts) Orchid Biotech The the projects. research your work company has Company is evaluating several development projects for experimental drugs come up with the following estimates of the initial capital requirements and NPVs for a wide variety of stafing needs, the company has also estimated the number of Scientists required for each development projects (all numbers are in milion dollars) Show Given ProjectNumber InitialCapital-T "of ResearchSciertists NPV $10 15 15 20 30 $10.1 19.0 22.0 25.0 12 1) (Spts) Suppose that Orchid has a total capital budget of $60 million. How should it prioritize these project? 2) (5pts) Suppose in addition that Orchid currently has only 12 research scientists and does not anticipate being able to hire any more in the future. How should the company prioritize these projects?Explanation / Answer
(i) Total capital budget is $60 million
Project Number
Initial Capital (Million $)
# of Research Scientists
NPV (Million $)
Profitability Index (NPV/Initial Capital)
Prioritize from highest index value to lowest
I
10
2
10.1
1.01
5
II
15
3
19
1.27
3
III
15
4
22
1.47
2
IV
20
3
25
1.25
4
V
30
12
60.2
2.01
1
Based on Profitability Index priority; project are selected V, III and II
Where total initial capital = $30 Million + 15 Million + 15 Million = $60 million (Total capital budget)
(ii) Total available Research scientists are 12.
Project Number
Initial Capital (Million $)
# of Research Scientists
NPV (Million $)
NPV/ No. Of Scientists
Prioritize from highest NPV/Scientist to lowest
I
10
2
10.1
5.05
4
II
15
3
19
6.33
2
III
15
4
22
5.50
3
IV
20
3
25
8.33
1
V
30
12
60.2
5.02
5
Based on highest NPV/ Scientist priority; project are selected IV, II, III and I
Where total required Research scientists = 3 + 3+ 4 + 2 = 12 (Total available Research scientists)
Project Number
Initial Capital (Million $)
# of Research Scientists
NPV (Million $)
Profitability Index (NPV/Initial Capital)
Prioritize from highest index value to lowest
I
10
2
10.1
1.01
5
II
15
3
19
1.27
3
III
15
4
22
1.47
2
IV
20
3
25
1.25
4
V
30
12
60.2
2.01
1
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