14.1 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? It’s IRR?

c. Is the project financially acceptable? Explain your answer

Year Project A Project B

1 $500,000 $2,000,000

2 $1,000,000 $1,000,000

3 $2,000,000 $600,000

(a.)What are the cash flows associated with the project?

(b) What is the project’s IRR?

(c) Assuming a project cost of capital of 10 percent, what is the project’s NPV?

(d) What is the project’s MIRR?

Probability NPV

0.05 ($700,000)

0.20 ($250,000)

0.50 ($120,000)

0.20 ($200,000)

0.05 ($300,000)

a.) What are the project’s expected NPV and standard deviation of NPV?

b.) Should the base case analysis use the most likely NPV or expected NPV? Explain your answer.

The Year 5 values include salvage value. Heywood’s corporate cost of capital is 10 percent.

b. What are the project’s most likely, worst, and best case NPVs?

c. What is the project’s expected NPV on the basis of the scenario analysis?

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