Great Lakes Clinic has been asked to provide exclusive healthcare services for next yearsâ€™ World Exposition. Although flattered by the request, the clinicâ€™s managers want to conduct a financial analysis of the project. There will be an up-front cost of $160,000 to get the clinic in operation. Then, a net cash inflow of $1 million is expected from operations in each of the two years of the Exposition. 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 the second year, is $2 million.
a. What are the cash flows associated with the project?
b. What is the projectâ€™s IRR?
c. Assuming a project cost of capital of 10 percent, what is the projectâ€™s NPV?