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PROBLEM 1The Gonzaba Clinic is evaluating a project

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PROBLEM 1
The Gonzaba 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? Its IRR?
c. Is the project financially acceptable? Explain your answer.

PROBLEM 2
Assume that you are the CFO at Methodist Hospital in San Antonio. 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 project’s expected net cash flows are as follows:
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

a. Calculate each project’s payback period, net present value (NPV), and internal rate of return (IRR).
b. Which project (or projects) is financially acceptable? Explain your answer

 
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