Buxton Community is expecting its new dialysis unit to generate the following cash flows:
|
Givens
|
Years
|
0
|
1
|
2
|
3
|
4
|
5
|
|
Initial investment
|
|
($10,000,000)
|
|
|
|
|
|
|
Net operatios cash flows
|
|
|
($1,500,000)
|
($2,000,000)
|
($4,000,000)
|
($7,000,000)
|
($14,000,000)
|
a. Determine the payback for the new dialysis unit.
b. Determine the NPV using a cost of capital of 11 percent.
c. Determine the NPV at a cost of capital of 20 percent and compute the IRR.
d. At an 11 percent cost of capital, should the project be accepted? At a 20 percent cost of capital, should the project be accepted? Explain.