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 Number Initial Capital 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 in addition that Orchid currently has only 12 research scientists and does not

anticipate being able to hire any more in the near future. How should Orchid prioritize

these projects?

c. If instead, Orchid had 15 research scientists available, explain why the profitability index

ranking cannot be used to prioritize projects. Which projects should it choose now?