#### 14.1 Winston Clinic is evaluating a project that costs $52,125 and has expected net cash flows of $12,000 per year for eight years. The first inflow occurs one year after the cost outflow, and the project has a cost of capital of 12 percent

14.1 Winston Clinic is evaluating a project that costs $52,125 and has expected net cash flows of $12,000 per

year for eight years. The first inflow occurs one year after the cost outflow, and the project has a cost of

capital of 12 percent.

a. What is the project’s payback?

b. What is the project’s NPV? It’s IRR?

c. Is the project financially acceptable? Explain your answer

14.2 Better Health, Inc. is evaluating two investment projects, each of which requires an up-front expenditure of $1.5 million. The projects are expected to produce the following net cash inflows:

Year Project A Project B

1 $500,000 $2,000,000

2 $1,000,000 $1,000,000

3 $2,000,000 $600,000

a. What is each project’s IRR?

b. What is each project’s NPV if the cost of capital is 10 percent? 5 percent? 15 percent?

14.4 Great Lakes Clinic has been asked to provide exclusive healthcare services for next year’s World Exposition. Although flattered by the request, the clinic’s managers want to conduct a financial analysis of the project. There will be an upfront cost of $160,000 to get the clinic in operation. Then net cash inflow of $1m million is expected from operations in each of the two years of the exposition. However, the clinic has to pay the organizers fee, which must be paid at the end of the second year, is $2 million.

(a.)What are the cash flows associated with the project?

(b) What is the project’s IRR?

(c) Assuming a project cost of capital of 10 percent, what is the project’s NPV?

(d) What is the project’s MIRR?

15.1 The managers of Merton Medical Clinic are analyzing a proposed project. The project’s most likelyNPV is $120,000, but, as evidenced by the following NPV distribution, there is considerable risk

involved:

Probability NPV

0.05 ($700,000)

0.20 ($250,000)

0.50 ($120,000)

0.20 ($200,000)

0.05 ($300,000)

a.) What are the project’s expected NPV and standard deviation of NPV?

b.) Should the base case analysis use the most likely NPV or expected NPV? Explain your answer.