Capital Budgeting

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
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.