Problem
Urban Hospital is considering a contract to provide basic medical services on location at various corporations in the area. The start-up costs to Urban are $125,000, all paid in cash at the beginning of the contract. The contract could provide net cash flows of $5,000 per month. The contract with the corporations last for three year. Urban only invests in projects that earn an annual rate of return of at least 18%. What rate of return would Urban earn on the contract? Should Urban accept the contract? Why?