Dr. Yuan opens a lab. The lab has an initial cost of $100,000. Expected net cash flow is $24,000 in the first year, growing by 15% per year. Net cash flow is revenue less expenses. Assume the lab has a 6 year life and there is no scrap value for the lab.

If the time discount rate is 8%, what is the NPV of the lab? What is its IRR?

The NPV is $41,976; the IRR is 6.0%.

The NPV is $31,740; the IRR is 6.0%.

The NPV is $26,479, the IRR is 16.7%

The NPV is $28,568; the IRR is 8.0%

The NPV is $27,600; the IRR is 8.0%

No answer text provided

Assume the partnership is formed and net cash flows are expected to grow at 10% each year. All else equal, what are the social welfare implications from the partnership, compared to the scenario of each doctor setting up their own lab?

Social welfare is improved due to economies of scale.

Social welfare declines due to diseconomies of scale.

Social welfare declines due to economies of scale.

There is no way to determine the impact on social welfare

Social welfare is not affected