9.4 Better Health Inc. is evaluating two capital investments, each of which requires an up front (Year 0) expenditure of $1.5 million. The projects are expected to produce the following net cash inflows:

Year Project A Project B

1 $500,000 $2,000,000

2 $1,000,000 $1,000,000

3 $2,000,000 $600,000

A) What is each project's IRR?

B) What is each projects NPV if the opportunity cost of capital is 10%? 5%? 15%?

9.6 Assume that you are the chief financial officer at Porter Memorial Hospital. 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

opportunity cost of capital for each project is 12 percent. The projects 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 projects payback, NPV, and IRR.

b. Which project (or projects) is financially acceptable? Explain your answer.

9.7)The director of capital budgeting for Big Sky Health Systems Inc. has estimated

the following cash flows (in thousands of dollars) for a proposed new service:

Year Expected Net Cash Flow

0 ($100)

1 70

2 50

3 20

The projects opportunity cost of capital is 10 percent.

a. What is the projects payback period?

b. What is the projects NPV?

c. What is the projects IRR?