Net cash flows for food services operation

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Reference no: EM13890305

The staff of Jefferson Medical Services has estimated the following net cash flows for 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 the terminal cash flow. (the clinic is expected to move to a new building in 5 years). All other flows represent net operating cash flows. Jefferson’s corporate cost of capital is 10%.

What is the project’s 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 $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 and best cases IRRs? The worst case and best case NPVs?

Reference no: EM13890305

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