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Suppose that you as the chief financial officer for Kindle Memorial Hospital and you were asked by the CEO to analyze two proposed capital investments – Project X and Project Y. Each project requires a net investment outlay of $10,000, and the cost of capital for each project is 12 percent. The projects’ expected net cash flows are as follows:
Year Project X Project Y
0 ($10,000) ($10,000)
1 6,500 3,000
2 3,000 3,000
3 3,000 3,000
4 1,000 3,000
a. Calculate each project’s payback period, net present value (NPV) and Internal rate of return (IRR)
b. Which project (or projects) is financially acceptable? Explain your answer briefly.
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An investment has an installed cost of $54972. The cash flows over the four-year life of the investment are projected to be $18202, $20327, $18949, and $13403. At what discount rate is the NPV just equal to zero?
A group of nerds perfect a process for converting seawater into crude oil. In order to keep their process off the market, OPEC offers license to process by paying the nerds an annual royalty payment of $100,000,000 starting one year from now, and the..
Rau Inc. has 6.0 percent coupon bonds on the market with 9 years to maturity. The bonds make semi-annual payments and currently sell for 110 percent of par. What is the YTM?
A local dental practice decides to run a Groupon campaign. The campaign offered $365 worth of dental services (such as teeth whitening) for $165. For the total campaign, 235 coupons were sold.
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