The staff of ProHealth Medical Services has established the following net cash flows for a food services operation that may open in its outpatient clinic. Year Expected Net Cash Flow 0 ($150,000) 1 40,000 2 40,000 3 40,000 4 40,000 5 40,000 5 (Salvage Value) 30,000   The time 0 cash flow is the net investment outlay, 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 ProHealth’s corporate cost capital is 10% What is the projects IRR?   Assuming the project has average risk, what, is its NPV?   Now, assume that the operating cash flows in years 1 through 5 could be as low as 20,000 or as high as $50,000. Furthermore, the salvage value cash flow at the end of year 5 could be as low as $0 or as high as $50,000.     What are the worst-case and best-case IRRS? The worst-case and best-case NPVs?

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
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  1. The staff of ProHealth Medical Services has established the following net cash flows for a food services operation that may open in its outpatient clinic.

Year

Expected Net Cash Flow

0

($150,000)

1

40,000

2

40,000

3

40,000

4

40,000

5

40,000

5 (Salvage Value)

30,000

 

The time 0 cash flow is the net investment outlay, 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 ProHealth’s corporate cost capital is 10%

  1. What is the projects IRR?

 

  1. Assuming the project has average risk, what, is its NPV?

 

  1. Now, assume that the operating cash flows in years 1 through 5 could be as low as 20,000 or as high as $50,000. Furthermore, the salvage value cash flow at the end of year 5 could be as low as $0 or as high as $50,000.

 

 

  1. What are the worst-case and best-case IRRS? The worst-case and best-case NPVs?
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