Question :- Castle Rock Medical Center expects Projects X and Y to generate the following cash flows:
NOCF = Net Operating Cash Flows
Givens
(thousands)
|
Years
|
0
|
1
|
2
|
3
|
4
|
5
|
Initial Investment
|
|
(6,500)
|
|
|
|
|
|
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
|
8%
|
|
|
|
|
|
|
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