Valley Care Medical Center expects Projects X and Y to generate the following cash flows:
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|
Givens (in '000s)
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Years 0
|
1
|
2
|
3
|
4
|
5
|
|
1
|
Initial investment ($7,500)
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|
|
|
|
|
|
2
|
Net operating cash flows for Project X
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$7,000
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$5,000
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$3,000
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$2,000
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$1,500
|
|
3
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Net operating cash flows for Project Y
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$1,500
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$2,000
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$3,000
|
$5,000
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$7,000
|
a. Determine the NPV for both projects using a cost of capital of 17 percent.
b. Determine the NPV for both projects using a cost of capital of 12 percent.
c. At a 12 percent discount rate, which project should be accepted? At a 17 percent discount rate, which project should be accepted? Explain.