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Assume that your organization's chief financial officer (CFO) has just completed a presentation to the board of trustees concerning the analysis of a proposed ambulatory surgery center costing $2 million. During the presentation, the CFO indicated that the project had a net present value (NPV) of $786,339 and an internal rate of return (IRR) of 17.3 percent. On the basis of its risk, the project was judged to have a cost of capital of 13 percent. Which of the following statements is correct? There may be more that one answer but you need only choose one.
a. The project is financially acceptable because its NPV is positive.
b. The project is financially acceptable because its IRR is greater than zero.
c. The project is financially unacceptable because its NPV is less than the project's initial investment costs.
d. The project is financially acceptable because its IRR is greater than its cost of capital.
e. The project is financially unacceptable, but it may have sufficient social value to make it worthwhile.
Define and discuss the importance of the time value of money concepts including compounding (future value), discounting (present value), and annuities. Why do organization leaders need to understand these concepts?
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An investment will pay $50 at the end of each of the next 3 years, $250 at the end of Year 4, $350 at the end of Year 5, and $600 at the end of Year 6. If other investments of equal risk earn 11% annually, what is its present value? Round your answer..
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