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Winston Clinic is evaluating a project that costs $52,125 and has expected net cash flows of $12,000 per year for eight years. The first inflow
Winston Clinic is evaluating a project that costs $52,125 and has expected net cash flows of $12,000 | |||||||
per year for eight years. The first inflow occurs one year after the cost outflow, and the project has a | |||||||
cost of capital of 12 percent. | |||||||
a. What is the project's payback? | |||||||
b. What is the project's NPV? Its IRR? | |||||||
c. Is the project financially acceptable? Explain your answer. | |||||||
ANSWER | |||||||
a. | |||||||
Table of cash flows for the project: | |||||||
Annual | Cumulative | ||||||
Year | Cash Flow | Cash Flow | |||||
0 | |||||||
1 | |||||||
2 | |||||||
3 | |||||||
4 | |||||||
5 | |||||||
6 | |||||||
7 | |||||||
8 | |||||||
Payback | |||||||
b. | |||||||
Discount rate | |||||||
NPV | |||||||
IRR | |||||||
c. | |||||||
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