Question:
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 opportunity cost of capital for each project is 12 percent. The projects' expected net cash flows are as follows:
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, NPV, and IRR.
b. Which project (or projects) is financially acceptable? Explain your answer.