Assume that you are the chief financial officer at Porter Memorial Hospital. The CEO has asked you 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 project's expected net cash flows are:
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.