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