Problem:
General Clinic has been asked to provide exclusive healthcare services for next year's State Exposition. Although flattered, the clinic's managers want to conduct a financial analysis of the project. Then, a net cash inflow of $1 million is expected from operations in each of the two years of the event. However, the clinic has to pay the organizers of the exposition a fee for the marketing value of the opportunity. This fee, which must be paid at the end of second year, is $2 million.
Q1. What are the net cash flows associated with the project?
$1 million for each of the two years = $2 million
Q2. What is the project's IRR?
Q3. Assuming a project cost of capital of 10 percent, what is the project's NPV?