Great Lakes Clinic has been asked to provide exclusive healthcare services for next year’s World Exposition. Although flattered by the request, the clinic’s managers want to conduct a financial analysis of the project. An up-front cost of $160,000 is needed to get the clinic into operation. Then, a net cash inflow of $1 million is expected from operations in each of the two years of exposition. However, the clinic has to pay the organizers of the exposition a fee for the marketing value of the opportunity. This fee, which must be paid at the end of the second year, is $2 million.
What are the net cash flows associated with the project?
What is the project’s IRR?
Assuming a project cost of capital of 10 percent, what is the project’s NPV?