Question

The Clinic has been asked to provide healthcare services for the upcoming Boston Calling concert event and next year’s event. They are the sole provider for both years. The clinic’s managers will conduct a financial analysis of the overall two year project. An up-front cost of $100,000 prior to the Year 1 event (= Year 0 Today) is needed to get the on-site clinic ready. , A net cash inflow of $250,000 is expected from the event organizers for each of the two years bands will perform ($250,00 both Year 1 & Year 2). However, Ogunquit Clinic has been also been asked to pay a marketing & branding fee as the exclusive provider of on-site health services. This $300,000 fee must be paid at the close of the Boston Calling event in Year 2. (5 points each, 10 points total)a.Assuming a capital cost of 10%, what is project’s net present value (NPV)?b. Assume that the marketing & branding fee does not have to be paid and the only variables are the $100,000 Year 0 Today outflow and the two $250,000 inflows (Saturday & Sunday). What is the project’s internal rate of return (IRR)?

Answer 1

Both the Technique used are part of capital budgeting. Please be careful when calculating Npv in this question, as the cash flow in year 2 needs to be decreased by the amount of marketing expense. While Irr is calculated without decreasing marketing expense.