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 aftertax 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 riskadjusted 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 Lotektype projects, while a 6 percentage point risk premium is used for project similar to Hitek. Determine the riskadjusted present value of the c cash inflow for LoTek and Hitek and calculate their riskadjusted net present values,. Should BioTek invest in either, both or neither project?
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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 aftertax cash xxxxx xxxxxxxxxx xxx xxxxxxxxxx outflow xx year xxxxx xxx xxxxxxxxx xxx xxxx xxxxxxxxx
xxxxxxxxxxxxxxyear  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?
xxxxxxxxxxxxxxxxxxxxxxxyear  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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