10.1 Great Lakes Clinic has been asked to provide exclusive healthcare services

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?

c,. Assuming a project cost of 10% capital, what is the project's NPV?

Explanation / Answer

Year Cashflows PVF@10% Present value 0 -160000 1.000 $ -160,000.00 1 1000000 0.909 $   909,090.91 2 -1000000 0.826 $ -826,446.28 Net present value $    -77,355.37

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