Estimated expenditures project costs and the first 9-years of cash in-flows for the two projects are shown below. Atrium Health estimates its average cost of capital at 7%.

Perform all capital budgeting calculations with a cost of capital of 7%

Year NextEra Green Willow Oak at Dilworth

0 (10,000,000) (100,000,000)

1 3,500,000 10,000,000

2 3,500,000 10,000,000

3 3,500,000 20,000,000

4 2,500,000 20,000,000

5 2,500,000 30,000,000

6 2,500,000 30,000,000

7 2,500,000 50,000,000

8 2,000,000 50,000,000

9 1,500,000 50,000,000

Because Atrium has less experience related to Willow Oak at Dilworth, the finance team has used scenario analysis and determined that the coefficient of variation of NPV for this project is 2.66. You do not need to do any calculations related to the coefficient of variation. Your need to interpret the results in your memorandum. The average project at Atrium has a coefficient of variation of NPV in the range of 1.0 to 1.5. Atrium adjusts for risk by adding or subtracting 2% to its 7% cost of capital. Given the coefficient of variation of NPV of 2.66, perform any needed calculations using the cash flows for Willow Oak at Dilworth, above, and describe the result of any needed risk adjustment in your management memorandum.

Content Your Memo Needs to Address

Your memorandum needs to address the five items listed below. You are required to use these headers, which are underlined below, in your memorandum.

1. Issue in this section, you need to communicate why the audience needs to read your memorandum.

2. Background provide a concise summary of the relevant details of NextEra Green and Willow Oak at Dilworth

3. Analysis describe the capital budgeting concepts and methods you have used to analyze each of the projects: NPV, IRR, MIRR, the profitability index, and payback period. Describe the relevant details about the risk analysis for the Willow Oak at Dilworth project. You can assume that some members of your audience have some knowledge of these methods. Others probably have no knowledge of these concepts and methods. The Board of Directors do not need to conduct such analyses; they just need to have a basic understanding of the most relevant concepts and methods, and their implications.

4. Results summarize the most relevant results of your analysis and point out to your audience where they can look for additional details, i.e., the tables.

5. Actions needed describe your recommendations, timeline for moving forward with the project(s) and rationale (or rationale for not moving forward).