Winston Clinic is evaluating a project that costs $52,125 and has expected net cash flows of $12,000 per
year for eight years. The first inflow occurs one year after the cost outflow, and the project has a cost of
capital of 12 percent.
a. What is the project’s payback?
b. What is the project’s NPV? Its IRR?
c. Is the project financially acceptable? Explain your answer.
Better Health, Inc. is evaluating two investment projects, each of which requires an up-front expenditure
of $1.5 million. The projects are expected to produce the following net cash inflows:
Year Project A Project B
0 -$1,500,000 -$1,500,000
1 $500,000 $2,000,000
2 $1,000,000 $1,000,000
3 $2,000,000 $600,000
a. What is each project’s IRR?
b. What is each project’s NPV if the cost of capital is 10 percent? 5 percent? 15 percent?
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