**14.1** Winston Clinic is evaluating a project that costs $52,125 and has expected net cash inflows of $12,000 per year for eight years. The first inflow occurs one year after the cost outflow, and the project has a cost of capital of 12 percent.

a What is the project’s payback

b. What is the project’s NPV? Its IRR? Its MIRR

c. Is the project financially acceptable? Explain your answer

**14.2** Better Health, Inc., is evaluating two investment projects, each of which requires an up-front expenditure of $1.5 million. The projects are expected to produce the following net cash inflows:

Year Project A Project B

1 $500,000 $2,000,000

2 1,000,000 1,000,000

3 2,000,000 600,000

a What is each project’s IRR

b What is each project’s NPV if the cost of capital is 10 percent? 5 percent? 15 percent?

**15.1** The managers of Merton Medical Clinic are analyzing a proposed project. The project’s most likely NPV is $120,000, but as evidenced by the following NPV distribution, there is considerable risk involved:

Probability NPV

0.05 ($700,000)

0.20 (250,000)

0.50 120,000

0.20 200,000

0.05 300,000

a What are the project’s expected NPV and standard deviation of NPV

b Should the base case analysis use the most likely NPV or the expected NPV? Explain your answer.