Question

Question 13 Your firm has acquired a bag of 35 pills of the cognitive-enhancing, nootropic drug called NZT-48. This has opened up four new potential projects for that would not be possible with only your regular unenhanced employees' feeble meatbag brains. Each project is non-repeatable and of equal time. You have calculated the NPV of each project as well as the requested number of NZT-48 pills by each project's exploratory team: firm your Pills Requested Project Codename NPV $46,900 $71,000 $27,750 $70,300 Commodus 14 Caligula 20 Nero 5 Elagabalus 19 Assume that you can do partial projects whereby you can allocate less pills than the number requested by the team. This would give you a pro-rata portion of that project's NPV (i.e. the amount of pills you allocate as a proportion of the number requested) Which of the following is closest to the maximum total NPV your firm can achieve through allocating its 35 NZT-48 pills across these four projects? a. $136,825 b. $135,975 c. $136,500 d. $136,275 e. $137,100

Answer 1

For this , first we need to calculate NPV/pill for each project

For Commodus, NPV/pill = $46900/14 = $3350

For Caligula, NPV/pill = $71000/20 = $3550

For Nero, NPV/pill = $27750/5 = $5550

For Elagabalus, NPV/pill = $70300/19 = $3700

The NPV/pill is highest for Project Nero, so 5 pills must first be alloted to Nero. As the projects are non-repeatable, next 19 pills should be alloted to project Elagabalus, which has the second highest NPV/pill. Now, we have only 11 (35-5-19 = 11) pills left, which we can allott to Project Caligla with the third highest NPV/pill.

So, total achievable NPV

= NPV of Nero + NPV of Elagabalus + partial (11/20 ) NPV of Caligula

=$27750+$70300 + $11/20*71000

=$98050+$39050 =

$137,100

Option e