What are the worst case and best case irrs

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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

The Year 0 cash flow is the net investment outlay, while the final amount is th 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 percent.

Now, assume that the operating cash flows in Years 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 are the worst case and best case IRRs? The worst case and best NPVs?

Reference no: EM13849851

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