G . B DE IF 1 PROBLEM 4 (14.9) 2 The staff of Jefferson Memorial Hospital has estimated the following net cash flows 3 for a satellite food services operation that may open in its outpatient clinic: 4 5 Year Expected Net Cash Flow 6 0 $ (100,000) 7 1 $ 30,000 8 2 $ 30,000 9 3 $ 30,000 10 4 $ 30,000 11 50 $ 30,000 12 15 (Salvage Value) $ 20,000 13 14 The Year 0 cash flow is the investment cost of the new food service, while the final amount 15 is the terminal cash flow. (The clinic is expected to more to move to a new building in five years.) 16 All other flows represent net operating cash flows. Jefferson's corporate cost of capital is 10 percent. 17 18 a. What is the project's RR? It's MIRR? 19 20 b. Assuming the project has average risk, what is it's NPV? 21 22 c. Now, assume that the operating cash flows in years 1 through 5 could be as low as $20,000 or as high 23 as $40,000. Furthermore, the salvage value cash flow at the end of year 5 could be as low as $0 or as high 24 as $30,000. What are the worst-case and best-case IRRS? The worst-case and best-case NPVs? 25 26