Harris Health is considering the development of a new ambulatory care service. The project will cost $500,000 to implement and have a useful life of five years. At the conclusion of the project’s useful life, equipment associated with the project can be sold for $45,000. Over the five years of operation, incremental revenue attributed to the project will be $180,000 annually, while incremental expenses annually will be $48,000. The organization is also considering an alternative project of similar risk and time horizon which has a rate of return equal to 4.5%. Assume Harris Health has a hurdle rate of 7% for projects of this type. From a financial perspective, should Harris pursue the project?
The computed internal rate of return is greater than the hurdle rate, therefore Harris Health should pursue the project.
The computed internal rate of return is less than the hurdle rate, therefore Harris Health should pursue the project.
The computed internal rate of return is greater than the hurdle rate, therefore Harris Health should not pursue the project.
The computed internal rate of return is equal to the hurdle rate, therefore Harris Health should pursue the project.