Question: The Chief Finance Officer (CFO) of BioCom Inc. needs to select one of the product lines from two mentioned below. (all figures are in thousands of dollars).
| Time of Cash Flow |
Nano Test Tubes |
Microsurgery Kit |
| Investment |
-$11,000 |
-$11,000 |
| Year 1 |
2,000 |
4,000 |
| Year 2 |
3,000 |
4,000 |
| Year 3 |
4,000 |
4,000 |
| Year 4 |
5,000 |
4,000 |
| Year 5 |
7,000 |
4,000 |
The CFO knows that BloCom has cost of capital as follows: debt (7.6%), Preferred Stock (10.53%), Common Stock (11.36%). The current tax-rate is 30% and Capital Structure is: debt (0.38), Preferred Stock (0.14), and Common Stock (0.48). Which product should the CFO choose if financial and technological risks were the same for both products?