2v 21 Calibri (Body) vxvfx 11 v B Av General 4:0 00 F G H B C D E 1 PROBLEM 5 2 Assume that you are the CFO at Memorial Hospital. The CEO has asked you to analyze two proposed 3 capital investments-project Cowboys and project Eagles. Each project requires a net investment outlay of $9,500,000, 4 and the cost of capital for each project is 5.5 percent. The projects' expected net cash flows are as follows: 5 6 Year Project Cowboys Project Eagles 7 0 $ (9,500,000) $ (9,500,000) 8 1 S 5,240,000 $ 3,062,000 9 2 $ 2,880,000 $ 2,878,000 10 3 $ 2,880,000 $ 2,694,000 11 4 $ 1,240,000 $ 2,602,000 12 5 $ 1,000,000 $ 2,050,000 13 14 15 16 a. Calculate each project's payback period, net present value (NPV), internal rate of return (IRR), and Modified internal rate of return (MIRR-use 7.5% for both rates). 17 18 19 Payback 20 NPV 21 IRR 4 Cowboys Eagles 121 Calibri (Body) vxvfx 11 v B Av General $ A B C D H 14 15 16 a. Calculate each project's payback period, net present value (NPV), internal rate of return (IRR), and Modified internal rate of return (MIRR-use 7.5% for both rates). 17 18 19 Payback Cowboys Eagles 20 NPV 21 IRR 22 MIRR 23 24 25 b. Which project is more financially acceptable? Explain your answer. 26 27 28 29 30 31 c. What is each project's NPV if the cost of capital is 2.5%, 5 % 7, 7.5 % 7, 10 % 7, 12.5%? Which project is more sensitive to changes in the cost of capital and why? 32 33 34 NPV Table Rate Cowboys Eagles K 121 XVfx A B 22 MIRR 23 D E F G H 24 25 b. Which project is more financially acceptable? Explain your answer. 26 27 28 29 30 S>> < 28 31 e. What is each project's NPV if the cost of capital is 2.5%, 5% ?, 7.5 % 7, 10 % 7, 12.5 % 7 Which project is more sensitive to changes in the cost of capital and why? 32 331 34 35 36 37 38 39 40 41 42 NPV Table: Rate Cowboys Eagles