The following question requires the calculation of the firm's capital budgeting issues expected returns, and financial selection. (Show all of your work-it might help!).

Suppose that you as the chief financial officer for Kindle Memorial Hospital and you were asked by the CEO to analyze two proposed capital investments – Project X and Project Y. Each project requires a net investment outlay of $10,000, and the cost of capital for each project is 12 percent. The projects’ expected net cash flows are as follows:

Year Project X Project Y

0 ($10,000) ($10,000)

1 6,500 3,000

2 3,000 3,000

3 3,000 3,000

4 1,000 3,000

a. Calculate each project’s payback period, net present value (NPV) and Internal rate of return (IRR)

b. Which project (or projects) is financially acceptable? Explain your answer briefly.