Castle Rock Medical Center expects Projects X and Y to generate the following cash flows:
|
Givens (in thousands) |
Years |
0 |
1 |
2 |
3 |
4 |
5 |
|
Initial investment |
($6,500) |
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|
Net operating cash flows for Project X |
$5,000 |
$3,000 |
$2,000 |
$1,600 |
$1,000 |
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|
Net operating cash flows for Project Y |
$1,000 |
$1,600 |
$2,000 |
$3,000 |
$5,000 |
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|
Discount rate for Part a |
13% |
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|
Discount rate for Pan b |
8% |
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a. Determine the NPV for both projects using a cost of capital of 13 percent.
b. Determine the NPV for both projects using a cost of capital of 8 percent.
c. At an 8 percent discount rate, which project should be accepted? At a 13 percent discount rate, which project should be accepted? Explain.