Complete parts a and b of End-of-Chapter Problem 10.4 from Chapter 10 (page 319). Use an Excel spreadsheet to calculate NPV and IRR. Show all work, including formulas for all calculations in Excel.

The staff of Jefferson Medical Services has estimated the following net cash flows for a food services operation that it may open in its outpatient clinic:

YearExpected Net Cash Flow0$100,000130,000230,000330,000430,000530,0005 salvage20,000

The Year 0 cash flow is the net investment outlay, while the final amount is the terminal cash flow. (The clinic is expected to move to a new building in five years.) All other flows represent net operating cash flows. Jeffersons corporate cost of capital is 10 percent.

a. What is the projects IRR?

b. Assuming the project has average risk, what is its NPV?

Point Allocation

Part a: 50%

Part b: 50%