Question
Great Lakes Clinic has been asked to provide exclusive healthcare services for next year's World Exposition. Although flattered by the request, the clinic's managers want
Great Lakes Clinic has been asked to provide exclusive healthcare services for next year's World Exposition. Although flattered by the request, the clinic's managers want to conduct a financial analysis of the project. There will be an up-front cost of $160,000 to get the clinic in operation. Then, a net cash inflow of $1 million is expected from operations in each of the two years of the exposition. However, the clinic has to pay the organizers of the exposition a fee for the marketing value of the opportunity. This fee, which must be paid at the end of the second year, is $2 million.
Here are the cash flows from the project:
YearCash Flow0-$160,0001$1,000,0002$1,000,000 - $2,000,000 = -$1,000,000
The Year 2 cash flow is the sum of the $1 million operating inflow and the $2 million fee paid to the organizers.
One of project's IRRs is 400%.What is the other IRR?
Type your answer as a percentage.Round to the nearest percentage point.
(Note: your financial calculator can only find one IRR.)
(Also note: there can be as many IRRs as there are sign changes in the cash flows.Here there are two sign changes.)
Continuing from the previous questions, assuming a project cost of capital of 50 percent, what is the project's NPV?
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