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Kinsella Industries (Kl), a medical supply manufacturing company, has a several divisions that manufacture different types of products for different markets. Jisoo, the CFO, has determined that the corporate cost of capital for Kl is 9.5%. The divisions have their own corporate cost of capital based on the relative risk profile of the division's products. The consumer division which focuses on durable medical equipment such as walkers, has a lower risk profile. The interventional division focuses on implantable devices such as pacemakers, and has a higher risk profile. The surgical division focuses on orthopedic implants such as screws and plates and has an average risk profile. Furthermore, each division has high, average, and low risk projects. The cost of capital for a given project is adjusted up by 2% for higher risk, and down 2% for lower risk based on the division profile and project-specific rating. Risk adjustments are cumulative for division and project. Consider the cash flows for a project to the right for the questions below. Year 0 1 2 3 4 5 6 7 Return (2,500,000) 320,000 425,000 500,000 520,000 550,000 550,000 650,000 1. What is the NPV for the project if it is done in the consumer division and is considered medium risk? 2. What is the NPV if the project is done in the interventional division and is considered high risk? Kinsella Industries (Kl), a medical supply manufacturing company, has a several divisions that manufacture different types of products for different markets. Jisoo, the CFO, has determined that the corporate cost of capital for Kl is 9.5%. The divisions have their own corporate cost of capital based on the relative risk profile of the division's products. The consumer division which focuses on durable medical equipment such as walkers, has a lower risk profile. The interventional division focuses on implantable devices such as pacemakers, and has a higher risk profile. The surgical division focuses on orthopedic implants such as screws and plates and has an average risk profile. Furthermore, each division has high, average, and low risk projects. The cost of capital for a given project is adjusted up by 2% for higher risk, and down 2% for lower risk based on the division profile and project-specific rating. Risk adjustments are cumulative for division and project. Jisoo is evaluating two new robotic picker systems for their manufacturing operations. The costs associated with picker systems are listed to the right. System A Year B 0 (Be sure to show work for partial credit) 1 2 -250 -250 -250 -1150 -100 -100 -100 3 4 -100 -100 5 6 -250 -250 -250 -250 -250 -250 7 -100 -100 -100 8 -250 -100 9 10 -250 -100 1. Assume this is a high-risk project that is company-wide. Which system should Jisoo recommend? 2. Assume this is a low-risk project that will only be deployed in the consumer division. Which system should be recommend

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