# Unit 9

14.1 Winston Clinic is evaluating a project that costs \$52,125 and has expected net cash inflows 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.

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a What is the project’s payback

b. What is the project’s NPV? Its IRR? Its MIRR

14.2 Better Health, Inc., is evaluating two investment projects, each of which requires an up-front expenditure of \$1.5 million. The projects are expected to produce the following net cash inflows:

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 is each project’s IRR

b What is each project’s NPV if the cost of capital is 10 percent? 5 percent? 15 percent?

15.1 The managers of Merton Medical Clinic are analyzing a proposed project. The project’s most likely NPV is \$120,000, but as evidenced by the following NPV distribution, there is considerable risk involved:

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 the expected NPV? Explain your answer.