If your discount rate is 12 percent, net present value and profitability index for each project. Which project has the best profitability index?

If your discount rate is 12 percent, net present value and profitability index for each project. Which project has the best profitability index?

The MIT Whitehead Institute must choose between two cDNA microarray machines to expand their high-throughput genomic laboratory.

1. The MIT Whitehead Institute must choose between two cDNA microarray machines to expand their high-throughput genomic laboratory. Both of these machines have the same function, and the firm will only choose on vendor from which to purchase their machines.

The first machine, manufactured by Amersham Pharmacia (machine 1), will cost $350,000. The second machine, manufactured by PE Applied Biosystems (machine 2), will cost $300,000.

The cost of capital for both of these investments is 9.5%. The life for both machines is estimated to be 5 years. During this period, cash flows for machine 1 will be $17,000 per year and cash flows for machine 2 will be $8,000 per year. These cash flows include depreciation expenses. Calculate NPV for each machine and select the best choice for the MIT Whitehead Institute.

2. Two investment projects which are mutually exclusive both require a $10,000,000 investment. Projected cash flows are:

Year Project A Project B 1 $3,500,000 $6,500,000 2 3,500,000 3,000,000 3 3,500,000 3,000,000 4 3,500,000 1,000,000

If your discount rate is 12 percent, net present value and profitability index for each project. Which project has the best profitability index?

3. Your hospital is considering buying personal computers to install in each patient’s room. The cost of the investment to the hospital will be $1,400,000. It is expected that these PCs will reduce nursing costs by $200,000 per year for the next seven years. If your discount rate is 10 percent, what is the profitability index of this investment?

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