**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. Given a wide variety of staffingneeds the company has also estimated the number of research scientists required for each development project(all cost values are given in millions ofdollars).

Project Number	Initial Capital ($ million)	Number of Research Scientists	NPV ($ million)
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 theseprojects?

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 theseprojects?

c. Ifinstead, Orchid had 15 research scientistsavailable, explain why the profitability index cannot be used to prioritize projects. Which projects should it choosenow?

**You are considering opening a new plant. The plant will cost $101.9 million upfront. Afterthat, it is expected to produce profits of $29.8 million at the end of every year. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 6.2%.

Should you make theinvestment? Calculate the IRR. Use the IRR to determine the maximum amount of estimation error allowable for the cost of capital estimate to leave the decision unchanged.

Calculate the NPV of this investment opportunity if your cost of capital is 6.2%. The NPV of this investment opportunity is

$__ million.(Round to one decimalplace.)

Should you make theinvestment?(best choicebelow.)

A.No, because the NPV is less than zero.

B.Yes because the project will generate cash flows forever.

C.No, because the NPV is not greater than the initial costs.

D.Yes, because the NPV is positive.

Calculate the IRR. The IRR of the project is %.(Round to two decimalplaces.)

Use the IRR to determine the maximum amount of estimation error allowable for the cost of capital estimate to leave the decision unchanged.The maximum amount of estimation error allowable is __%(Round to two decimalplaces.)

**Heavy Metal Corporation is expected to generate the following free cash flows over the next fiveyears

Year	1	2	3	4	5
FCF($ million)	51.6	67.2	77.3	76.1	83.3

Afterthat, the free cash flows are expected to grow at the industry average of 4.1% per year. Using the discounted free cash flow model and a weighted average cost of capital of 14.1%:

a. Estimate the enterprise value of Heavy Metal.

b. If Heavy Metal has no excesscash, debt of $300 million, and 37 million sharesoutstanding, estimate its share price.