10.1 Great Lakes Clinic has been asked to provide exclusive healthcare services
ID: 2771298 • Letter: 1
Question
10.1 Great Lakes Clinic has been asked to provide exclusive healthcare services for next year's World Exposistion. The clinic manager's want to conduct a financial analysis of the project. An up-fron cost of $160,000 is needed to get the clinic in operation. Then a net cash flow of $1 million is expected from operations in each of the 2 years of the exposistion. However, the clinic has to pay the organizers of the exposistion a fee for the marketing value of the oppurtuinty. This fee, which must be paid at the end of the 2nd year is $ 2 million.
a. What are the net cash flows associated with the project?
b. What is the project's IRR?
c,. Assuming a project cost of 10% capital, what is the project's NPV?
Explanation / Answer
Statement showing calculation of NPV Particulars Time PVF@10% Amount PV(Amount *PVF) Cash outflows - 1.000 (160,000.00) (160,000.00) Cash outflows 2.000 0.8264 (2,000,000.00) (1,652,892.56) PV of Cash Outflows (1,812,892.56) Cash inflows 1.000 0.9091 1,000,000.00 909,090.91 Cash inflows 2.000 0.8264 1,000,000.00 826,446.28 PV of Cash Inflows 1,735,537.19 NPV (77,355.37) IRR is 25% as NPV is nil at this level Particulars Time PVF@25% Amount PV(Amount *PVF) Cash outflows - 1.000 (160,000.00) (160,000.00) Cash outflows 2.000 0.6400 (2,000,000.00) (1,280,000.00) PV of Cash Outflows (1,440,000.00) Cash inflows 1.000 0.8000 1,000,000.00 800,000.00 Cash inflows 2.000 0.6400 1,000,000.00 640,000.00 PV of Cash Inflows 1,440,000.00 NPV -
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