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Assigned broblem 2 Great Lakes Clinic has been asked to provide excusive healthcare services for next year's World Exposition. Although flattered by the request, the dinle's managers want to conduct a financial analysis of the project. There will be an up-front cost of $160,000 to get the dinic in operation. Then, a net cash In flow of $1 million is expected from operations in each of the two years of the exposition. However, the dinic has to pay the organizers of the exposition a fee for the marketing value of the opportunity. This fee, which must be pald at the end of the second year, is $2 million, 1. What are the cash flows associated with the project that are relevant for capital budgeting purpose? b. Find the project NPV If Its cost of capital is 25 percent and If its cost of capital is 400%. c. From the results in b. can we conclude what the IRR of this project is? Why or why not? d. If the project cost capital is 10 percent, what would be the project's NPV in this case? Shoud the project be undertaken? ANSWER Relevant cash flows: 5 Year Cash Flow 0 1 2 B 0 1 25% 400% 3 4b. 5 NPV 36 NPV 37 8 39 10 11 42 + 43 44 d. 45 NPV 45 47 10% 48 49 50