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Assume that you are the CFO at Methodist Hospital in San Antonio. The CEO has asked you to analyze two proposed capital investments: Project X

Assume that you are the CFO at Methodist Hospital in San Antonio. 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 cost of capital for each project is 12 percent. The project's expected
net cash flows are as follows:
Year Project X Project Y NPV
0 -$11,000 -$11,000
1 $7,000 $3,000
2 $3,000 $3,000
3 $3,000 $4,000
4 $1,000 $4,000
a. Calculate each project's payback period, net present value (NPV), and internal rate of return (IRR).
b. Which project (or projects) is financially acceptable? Explain your answer.
a. Complete the table below, solving for the project's cash flows, paybacks, NPVs (at 12 percent), and IRRs.
Project X Project X Project Y Project Y
Annual Cumulative Annual Cumulative
Year Cash Flow Cash Flow Cash Flow Cash Flow
0
1
2
3
4
Payback
NPV
IRR
b. Which project (or projects) is financially acceptable? Explain your answer.

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