Expected Net Cash Flow ($100,000) Year 1 $30,000 2 $30,000 3 $30,000 4 $30,000 $30,000 $20,000 5 5 (salvage value) The year 0 cash flow is the investment cost of the new food service, while the final amount is the terminal cash flow. (The clinic s expected to move to a new building in five years.) All other flows represent net operating cash flows. Jefferson's corporate cost of capital is 10 percent. Jsing Excel functions/formulas, answer the following: a) What is the project's IRR? Its MIRR? c) Assuming the project has average risk, what is its NPV? di Should the sta ff of lefferson Memorial Hosnital recommend this proiect?
Expected Net Cash Flow ($100,000) Year 1 $30,000 2 $30,000 3 $30,000 4 $30,000 $30,000 $20,000 5 5 (salvage value) The year 0 cash flow is the investment cost of the new food service, while the final amount is the terminal cash flow. (The clinic s expected to move to a new building in five years.) All other flows represent net operating cash flows. Jefferson's corporate cost of capital is 10 percent. Jsing Excel functions/formulas, answer the following: a) What is the project's IRR? Its MIRR? c) Assuming the project has average risk, what is its NPV? di Should the sta ff of lefferson Memorial Hosnital recommend this proiect?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:**Investment Analysis for Jefferson Memorial Hospital's Satellite Food Services**
The staff of Jefferson Memorial Hospital has estimated the following net cash flows for a satellite food services operation that it may open in its outpatient clinic:
| Year | Expected Net Cash Flow |
|------|------------------------|
| 0 | ($100,000) |
| 1 | $30,000 |
| 2 | $30,000 |
| 3 | $30,000 |
| 4 | $30,000 |
| 5 | $30,000 |
| 5 (salvage value) | $20,000 |
- **Year 0 Cash Flow**: This represents the initial investment cost of the new food service.
- **Final Cash Flow**: This is the terminal cash flow, considering the clinic is expected to move to a new building in five years.
- **Other Flows**: These are net operating cash flows.
- **Corporate Cost of Capital**: 10%
Using Excel functions/formulas, answer the following:
1. **What is the project's IRR? Its MIRR?**
2. **Assuming the project has average risk, what is its NPV?**
3. **Should the staff of Jefferson Memorial Hospital recommend this project?**
For these calculations, remember to use Excel's IRR, MIRR, and NPV functions to determine the financial viability of the project.
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