Question
New Clinic (trailer) est to cost $280,000, unit and equipment will have a 5 yr life due to salt air, the lot will be rented
New Clinic (trailer) est to cost $280,000, unit and equipment will have a 5 yr life due to salt air, the lot will be rented on an annual basis.
Plans are to build a permanent replacement by the end of 5th year, plans will be to close and scrap the trail and equipment at the end of economic life. The salvage value is expected to approximately equal disposal cost.
yr o yr 1 yr 2 yr 3 yr 4 yr 5
Pt rev 100,000 220,000 235,000 250,000 300,000
Operating cost -280,000100,000 100,000 100,000 125,000 150,000
Profit (loss) -280,000 0120,000 135,000 125,000 150,000
the clinic applies a 20% cost of capital hurdle rate to risky projects of this type, and wants payback within the 1st 50% of the project life.
1.) What is the payback period for the project?
2.) What is the net present value (NPV) of the project?
3.) What is the internal rate of return (IRR) for the project?
4.) Should the project be undertaken? Why or why not? discuss the factors that might influence the decision making.
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