Final answer:
The question involves capital budgeting for R&D projects within a research company, requiring the ranking based on estimated rates of return and spillover benefits to society. The Big Drug and Gizmo Company examples serve as reference points for this decision-making process, considering both private and social returns.
Step-by-step explanation:
The subject of the question revolves around the concept of capital budgeting within the context of a research and development (R&D) scenario. In your role as a tutor addressing this question, you would assess the feasible projects for Veridian Dynamics, a research company in this hypothetical case. The task involves evaluating and ranking capital budget projects based on provided rates of return and a set budget limit.
For the Big Drug Company example, their R&D project selection would also include considerations of spillover benefits to society, reflecting a higher rate of return for society than the private rate for the company itself. This illustrates the company's demand for financial capital in pursuing R&D investments, as represented by the Dprivate and Dsocial curves. Similar considerations would likely apply to the case of Veridian Dynamics. For the Gizmo Company example, there is a quantified additional social benefit, with a consistent 5% social benefit added atop the private return rate. Using this model, the decision making would involve calculating both the private and social returns and then ranking the projects based on these enhanced return figures to determine their overall value.