Question
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
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 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 | Initial Capital ($) | Number of Research Scientists | NPV($) | Profitability Index | NPV/Headcount |
| 1 | 10 | 2 | 10.1 | ? | ? |
| 2 | 15 | 3 | 19.0 | ? | ? |
| 3 | 15 | 4 | 22.0 | ? | ? |
| 4 | 20 | 3 | 25.0 | ? | ? |
| 5 | 30 | 12 | 60.2 | ? | ? |
a) Suppose that Orchid has a total capital budget of $60 million. How should it prioritize these projects and which should it accept?
b) Suppose, in addition, that Orchid currently has 12 research scientists and does not anticipate being able to hire more. How should it prioritize these projects and which should it accept?
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