# Internal Rate of Return in Cash Flow Estimation

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Pinehill Medical Associates (PMA) wants to expand. The medical group can acquire an open former medical facility nearby for $150,000 and will need an additional $50,000 for renovations with a total mortgage of $200,000. The payment will be $1050 per month for 30 years. Another option is to build a new facility for $250,000 and with monthly mortgage payments of $1100. The discount rate for both projects is 10%. The cost of capital is 15%. (See attached file for table).

• Determine which scenario would be the best option for the group over the next five years in terms of Internal Rate of Return (IRR).

• Write an interpretation of your findings and submit as a WORD document.

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##### Solution Summary

The expert determines the real net present value of two investment opportunities anyhow to interpret their potential

##### Solution Preview

We are given two potential options for financing a building, presumably to afford the firm the ability to increase income over the next several years. The financial principle involved is time value of money - we are being asked to determine the net present value of the future income, then we need to discount it back to the present in order to gain a firm understanding of the REAL amount available from an investment perspective.

See spread sheet attached, it breaks down the calculations for each ...

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