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 ($100,000) $30,000 $30,000 $30,000 $30,000 $30,000 $20,000 1 2 4 5 (salvage value) The year O cash flow is the investment cost of the new food service, while the final amount is the terminal cash flow. (The clinic is 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. (a) What is the project's IRR? Its MIRR? (b) What is the project's payback period? (c) Assuming the project has average risk, what is its NPV? (d) Should the staff of Jefferson Memorial Hospital recommend this project?
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 ($100,000) $30,000 $30,000 $30,000 $30,000 $30,000 $20,000 1 2 4 5 (salvage value) The year O cash flow is the investment cost of the new food service, while the final amount is the terminal cash flow. (The clinic is 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. (a) What is the project's IRR? Its MIRR? (b) What is the project's payback period? (c) Assuming the project has average risk, what is its NPV? (d) Should the staff of Jefferson Memorial Hospital recommend this project?
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
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Transcribed Image Text: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
($100,000)
$30,000
$30,000
1
2
$30,000
$30,000
$30,000
$20,000
4
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
is 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.
(a) What is the project's IRR? Its MIRR?
(b) What is the project's payback period?
(c) Assuming the project has average risk, what is its NPV?
(d) Should the staff of Jefferson Memorial Hospital recommend this project?
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