Assignment: Capital Budget

Answer the following questions:

1. If a physician deposits $24,000 today into a mutual fund that is expected to grow at an annual rate of 8%, what will be the value of this investment:

a. 3 years from now
b. 6 years from now
c. 9 years from now
d. 12 years from now

2. The Chief Financial Officer of a hospital needs to determine the present value of $120,000 investment received at the end of year 5. What is the present value if the discount rate is:

a. 3%
b. 6%
c. 9%
d. 12%

3. The Kadrie's dental group purchased a new diagnostic machine for their office for $1,200,000. The expected cash flows for each year of the five year period is $140,000, $175,000, $199,000, $218,000, and $245,000 for the five years. What is the internal rate of return or the IRR for the project?

4. Determine the Net Present Value for Problem 3 with an interest rate of 10%. Do you proceed or not with the project?

5. Determine the Payback Period for Problem 3.