Biotech Partners LLC has been farming a new strain of radioactive-material-eating bacteria that the electrical utility industry
Question:
Biotech Partners LLC has been farming a new strain of radioactive-material-eating bacteria that the electrical utility industry can use to help dispose of its nuclear waste. Two opposing factors affect Biotech’s decision of when to harvest the bacteria. The bacteria are currently growing at a 22 percent annual rate, but due to known competition from other top firms, Biotech analysts estimate that the price for the bacteria will decline according to the schedule below. If the opportunity cost of capital is 10 percent, then when should Biotech harvest the entire bacteria colony at one time?
Year Change in Price Due to Competition (5)
1 ................................................... 5%
2 ................................................... -2
3 .................................................. -8
4 ................................................. -10
5 ................................................ -15
6 ............................................... -25
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
Step by Step Answer:
Fundamentals of corporate finance
ISBN: 978-0470876442
2nd Edition
Authors: Robert Parrino, David S. Kidwell, Thomas W. Bates