Change percentages from previous completed document attached.
BioCom, Inc.: Part 1 BioCom was founded in 1993, when several scientists and engineers at a large fiber-optic-cable company began to see that optical fiber for the telecommunications industry was becoming a cheap commodity. They decided to start their own firm, which would specialize in cutting-edge applications for research in the life sciences and medical instruments. BioCom is now one of the leading firms in its niche field. BioCom’s management attributes the firm’s success to its ability to stay one step ahead of the market’s fast-changing technological needs. Almost as important is BioCom’s ability to select high-value-added projects and avoid commercial disasters. Over lunch, BioCom’s director of research and development (R&D) mentioned to the CFO that one of his best young scientists had recently left the company because his line manager had rejected his project. Although not a pattern, R&D had experienced similar losses in the past. The two executives discussed the problem and agreed that if the R&D people understood the selection process better, they might come up with more commercially viable projects and understand the project’s financial implications. The CFO has asked his assistant, Jane Donato, to prepare a retreat for the R&D department to explain the company’s project selection procedures. Jane is encouraged by the thought that this group will have no trouble in following the math. BioCom’s standard capital request form includes a narrative description of the project and the customer need that the company must fulfill. If the request originates with R&D, it then goes to the marketing department for a preliminary sales forecast and then to the production manager and cost analysts for cost estimates. If a proposal shows promise after these steps, it goes to the CFO, who has a staff member enter the data into a spreadsheet template. The template computes payback, discounted payback, net present value, internal rate of return, and modified internal rate of return. BioCom uses net present value as its primary decision criterion, but company executives believe that the other statistics provide some useful additional perspectives. To explain BioCom’s capital budgeting techniques, Jane has decided to present the cash flows from two recent proposals: the nano test tube project and the microsurgery kit project. All figures are in thousands of dollars: Time of Cash Flow Nano Test Tubes Microsurgery Kit Investment ($12,000) ($12,000) Year 1 2,000 5,000 Year 2 3,000 5,000 Year 3 4,000 5,000 Year 4 5,000 5,000 Year 5 7,000 5,000 Help Jane answer the following questions. QUESTION 1 1. Compute the payback period for Nano Test Tubes project. Input your answer to the nearest tenth of a year. For example, if the answer is 2.17 years, input 2.2 into blackboard. 10 points QUESTION 2 1. Compute the payback period for the Microsurgery Kit project. Input your answer to the nearest tenth of a year. For example, if the answer is 2.17 years, input 2.2 into blackboard. 10 points QUESTION 3 1. Compute the discounted payback period for Nano Test Tubes using a discount rate of 7%. Input your answer to the nearest tenth of a year. For example, if the answer is 2.17 years, input 2.2 into blackboard. 10 points QUESTION 4 1. Compute the discounted payback period for Microsurgery Kit project using a discount rate of 7%. Input your answers to the nearest tenth of a year. For example, if the answer is 2.17 years, input 2.2 into blackboard. 10 points QUESTION 5 1. Compute the net present value (NPV) for the Nano Test Tubes project. BioCom uses a discount rate of 8% for projects of average risk. Input your answer to the nearest whole number. 10 points QUESTION 6 1. Compute the net present value (NPV) for the Microsurgery Kit project. BioCom uses a discount rate of 8% for projects of average risk. Input your answer to the nearest whole number. 10 points QUESTION 7 1. Compute the internal rate of return (IRR) for Nano Test Tubes project. Enter the number as a decimal rounded to the nearest hundredth. For example if the answer was 15.2%, enter the answer in blackboard as 0.15. 10 points QUESTION 8 1. Compute the internal rate of return (IRR) for Microsurgery Kit project. Enter the number as a decimal rounded to the nearest hundredth. For example if the answer was 15.2%, enter the answer in blackboard as 0.15. 10 points QUESTION 9 1. Compute the modified internal rate of return (MIRR) for Nano Test Tubes project. Assume that project cash flows are reinvested at 5% during the project life and that the after tax cost of money for the project is 6%. Enter the number as a decimal rounded to the nearest hundredth. For example if the answer was 15.2%, enter the answer in blackboard as 0.15. 10 points QUESTION 10 1. Which of the following is a disadvantage of using the IRR method of capital budgeting over other types: A. a. IRR does not consider the time value of money. B. a. IRR ignores the prudent simplicity of paybacks. C. a. IRR assumes reinvestment of project cash flows at the same rate as the IRR. D. a. None of the above is a disadvantage of using IRR for capital budgeting decisions. 10 points