Assume you are the chief financial officer at Waco Hospital. The CEO has asked you to analyze two proposed capital investments:

The X Project vs. the Y Project

Each project requires a net investment outlay of $75,000, and the cost of capital for each project is 10%. The projects expected net cash flows are as follows:

Year Project X Project Y

0 -$75,000 -$75,000

1 $20,000 $50,000

2 $20,000 $15,000

3 $20,000 $15,000

4 $30,000 $10,000

1. Calculate each projects net present value (NPV) and internal rate of return (IRR).

NPV of project X

Year cash flow PV factors Discounted cash flow

0 (75,000)

2. Which project (or projects) is financially acceptable? If you reach different conclusions regarding the financial acceptability of each project, explain why given both projects return total cash flows of $90,000 over the four years.