Assume that you are the chief financial officer at Porter Memorial Hospital.
Assume that you are the chief financial officer at Porter Memorial Hospital. The CEO has asked you to analyze two proposed capital investments—Project X and Project Y. Each project requires a net investment outlay of $10,000, and the cost of capital for each project is 12 percent. The projects’ expected net cash flows are:
Year
Project X
Project Y
0
($10,000)
$10,000)
1
6,500
3,000
2
3,000
3,000
3
3,000
3,000
4
1,000
3,000
Calculate each project’s payback period, net present value (NPV), and internal rate of return (IRR).
Which project (or projects) is financially acceptable? Explain your answer.
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