Question
The staff of ProHealth Medical Services has established the following net cash flows for a food services operation that may open in its outpatient clinic.
- The staff of ProHealth Medical Services has established the following net cash flows for a food services operation that may open in its outpatient clinic.
| Year | Expected Net Cash Flow |
| 0 | ($100,000) |
| 1 | 40,000 |
| 2 | 40,000 |
| 3 | 40,000 |
| 4 | 40,000 |
| 5 | 40,000 |
| 5 (Salvage Value) | 30,000 |
The time 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 ProHealths corporate cost capital is 10%
- What is the projects IRR?
- Assuming the project has average risk, what, is its NPV?
- Now, assume that the operating cash flows in years 1 through 5 could be as low as 30,000 or as high as $50,000. Furthermore, the salvage value cash flow at the end of year 5 could be as low as $0 or as high as $40,000. What are the worst-case and best-case IRRS? The worst-case and best-case NPVs?
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Authors: Jocelyn Pixley
2nd Edition
1107633370, 978-1107633377
