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Question
Submitted by stuent on Mon, 2012-04-30 19:19
due on Mon, 2012-04-30 19:27
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The Biotek Corporation has a basic cost of capital of 15 percent and is considering investing in either or both...

The Biotek Corporation has a basic cost of capital of 15 percent and is considering investing in either or both of the following projects. Project HiTek will require an investment of $453,000, while Project LoTek’s investment will be $276,000.. The following after-tax cash flows (including the investment outflow in year zero) are estimated for each project. YEAR PROJECT PROJECT

HITEK LOTEK 0 $-453,000 $-276,000 1 132,000 74,000 2 169,500 83,400 3 193,000 121,000 4 150,700 54,900 5 102,000 101,000 6 0 29,500 7 0 18,000 a) Determine the present value of the cash inflows for each project and then calculate their net present values by subtracting the appropriate dollar amount of capital investment. Which if either of the projects is acceptable? b) B. Calculate the internal rates of return for Project HiTek and Project Lotek. Which project would be preferred? c) Now assume that BioTek uses risk-adjusted discount rates to adjust for differences in risk among different investment opportunities. Biotek projects are discounted at the firm’s cost of capital of 15 percent. A risk premium of 3 percentage points is assigned to Lotek-type projects, while a 6 percentage point risk premium is used for project similar to Hitek. Determine the risk-adjusted present value of the c cash inflow for LoTek and Hitek and calculate their risk-adjusted net present values,. Should BioTek invest in either, both or neither project?

Answer
Submitted by shahimermaid on Mon, 2012-04-30 21:15
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The Biotek Corporation has x xxxxx cost xx capital of 15 percent xxx is xxxxxxxxxxx xxxxxxxxx xx either or xxxx xx the xxxxxxxxx xxxxxxxxx The xxxxxxxxx after-tax cash xxxxx xxxxxxxxxx xxx xxxxxxxxxx outflow xx year xxxxx xxx xxxxxxxxx xxx xxxx xxxxxxxxx

xxxxxxxxxxxxxx

year

HITEK

xxxxxx

0

xxxxxxxxx

$-276,000

1

132,000

xxxxxx

x

xxxxxxx

83,400

x

193,000

xxxxxxx

x

150,700

xxxxxx

x

xxxxxxx

xxxxxxx

6

x

xxxxxx

x

x

18,000

xx Determine the xxxxxxx value xx the xxxx inflows for xxxx project xxx xxxx calculate their xxx xxxxxxx xxxxxx xx subtracting the appropriate xxxxxx xxxxxx xx capital investment. Which xx xxxxxx of xxx projects xx acceptable?

xxxxxxxxxxxxxxxxxxxxxxx

year

hitech

xxx

PV cash xxxx

LOTEK

PV cash flow

0

($453,000)

x

($453,000)

xxxxxxxxxx

xxxxxxxxxx

1

132,000

xxxxxx

114787.2

74,000

xxxxxxxxx

x

169,500

0.7561

128158.95

xxxxxx

63058.74

3

193,000

0.6575

xxxxxxxx

xxxxxxx

xxxxxxx

x

xxxxxxx

0.5718

86170.26

54,900

49272.155

x

xxxxxxx

0.4972

xxxxxxx

101,000

50217.2

6

x

xxxxxx

$0

xxxxxx

$12,753

7

0

0.3759

0

xxxxxx

x

 

 

 

xxxxxxx

 

$78,677

Both the projects have a xxxxxxxx NPV xxx Lotek has a higher xxxxxxxx xxxxx so, it should xx xxxxxxxx over xxxxxx

b) xx xxxxxxxxx xxx internal rates xx xxxxxx

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