Assume that you are the Financial Analyst at Lake County Hospital. The CFO has asked you to analyze three proposed capital investments of average risk: Projects A, B, and C. Each project requires a net investment outlay of $10,000, and the corporate cost of capital is 12 percent. The project's expected net cash flows are as follows:

Year	Project A	Project B	Project C
0	-$10,000	-$10,000	-$10,000
1	$6,000	$3,000	$3,000
2	$4,000	$3,000	$3,000
3	$2,000	$3,500	$3,000
4	$1,500	$3,500	$6,000

Answer the following:

2. 1. Calculate each project's payback period, net present value (NPV), and internal rate of return (IRR). Which project (or projects) is financially acceptable? Explain your answer.
4. 2. Project B has been determined to be of below-average risk, which would reduce the cost of capital for that project by 3%. Does that change the acceptability of Project B? Explain your answer.
6. 3. If these projects are mutually exclusive, would Project A, the below-risk Project B, or Project C be chosen? Explain your answer.

Answer rating: 100% (QA)

1 Calculation of Payback Period ... View the full answer