Question - Suppose that you as the chief financial officer for Kindle Memorial Hospital and you were asked by the CEO 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 projects' expected net cash flows are as follows:
|
Year
|
Project X
|
Project X
|
|
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 briefly.