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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
4. The Staff of Jefferson Medical Services has estimated the following net cash flows for a food services operation that it may open in its outpatient clinic:
Year Expected net cash flow
0 ($100,000)
1 30,000
2 30,000
3 30,000
4 30,000
5 30,000
5(salvage value) 20,000
Â
The Year o 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. Jefferson's corporate cost of capital is 10%.
a. What is the project's IRR??
b. Assuming the project has average risk, what us its NPV??
c. Now assuming that operating cash flows in Year 1 through 5 could be as low as $20,000 or as high as $40,000. Furthermore, the salvage value cash flow at the end of Year 5 could be as low as $0 or as high as $30,000. What is the worst case and best case IRR?? The worst case and best case NPV?
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