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 xxxxxxxxxxx xxx a xxxxx xxxx of capital of 15 percent xxx is considering investing xx either xx xxxx xx the following xxxxxxxxx The xxxxxxxxx aftertax cash flows (including xxx xxxxxxxxxx xxxxxxx xx xxxx xxxxx are xxxxxxxxx xxx xxxx xxxxxxxxx
xxxxxxxxxxxxxxxxxxx  HITEK  LOTEK 
0  xxxxxxxxx  xxxxxxxxx 
1  132,000  74,000 
2  xxxxxxx  xxxxxx 
3  xxxxxxx  xxxxxxx 
4  150,700  54,900 
5  xxxxxxx  101,000 
x  x  29,500 
x  0  xxxxxx 
a) Determine xxx present value of xxx xxxx inflows for each xxxxxxx xxx xxxx xxxxxxxxx their net present values by xxxxxxxxxxx xxx xxxxxxxxxxx xxxxxx amount of capital investment. Which if xxxxxx of xxx xxxxxxxx xx acceptable?
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxyear  xxxxxx  xxx  xx xxxx xxxx  LOTEK  PV cash flow 
0  ($453,000)  x  xxxxxxxxxx  xxxxxxxxxx  xxxxxxxxxx 
1  132,000  0.8696  xxxxxxxx  xxxxxx  xxxxxxxxx 
2  169,500  0.7561  128158.95  xxxxxx  63058.74 
x  193,000  xxxxxx  $126,898  xxxxxxx  $79,558 
x  150,700  0.5718  xxxxxxxx  54,900  xxxxxxxxx 
x  xxxxxxx  0.4972  xxxxxxx  xxxxxxx  xxxxxxx 
6  x  0.4323  xx  xxxxxx  xxxxxxx 
x  0  xxxxxx  0  18,000  x 


 $53,728 
 xxxxxxx 
xxxx the xxxxxxxx have a xxxxxxxx NPV but Lotek xxx a xxxxxx positive xxxxx so, xx xxxxxx xx xxxxxxxx xxxx Hitech
b) B. xxxxxxxxx xxx xxxxxxxx rates of return xxx Project xxxxx and Project Lotek. Which xxxxxxx xxxxx xx xxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxyear  hitech  xxx  xx xxxx flow 
x  ($453,000)  x  ($453,000) 
1  132,000  xxxxxxxx  xxxxxx 
x  169,500  0.694444  xxxxxxxxxxx 
3  xxxxxxx  0.578704  xxxxxxxx 
4  xxxxxxx  xxxxxxxx  xxxxxxxxxxx 
x  102,000  xxxxxxxx  40991.51235 
6  0  xxxxxxxx  $0 
7  0  xxxxxxxx  x 


 $65 
xxxxx excel Function xxx xxx xxxxx is xxx xxx Lotek xx 19%.
xx Now xxxxxx that xxxxxx xxxx riskadjusted discount xxxxx to xxxxxx for differences in risk among different xxxxxxxxxx opportunities. xxxxxx xxxxxxxx xxx discounted xx xxx xxxx’s cost xx capital of xx percent. x xxxx premium xx x percentage points xx xxxxxxxx xx Lotektype
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