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 ($150,000) 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 ProHealth’s 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 20,000 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 $50,000. What are the worst-case and best-case IRRS? The worst-case and best-case NPVs?
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 ($150,000) 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 ProHealth’s 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 20,000 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 $50,000. What are the worst-case and best-case IRRS? The worst-case and best-case NPVs?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 7E
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- 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 |
($150,000) |
|
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 ProHealth’s 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 20,000 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 $50,000.
- What are the worst-case and best-case IRRS? The worst-case and best-case NPVs?
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