13. St. Rose Hospital expects Projects A and B to generate the following cash fl

Question

13. St. Rose Hospital expects Projects A and B to generate the following cash flow Givens (in '000s) 1 Initial investment 2 Net operating cash flows for Project A 3 Net operating cash flows for Project Years 0 2 ($3,500) $2,500 $2,000 $1,500 $1,000 $600 $600 $1,000 $1,500 $2,000 $2,500 a. b. c. Determine the NPV for both projects using a cost of capital of 20 percent. Determine the NPV for both projects using a cost of capital of 10 percent. At a 10 percent cost of capital, which project should be accepted? At a 20 percent cost of capital, which project should be accepted? Explain.

Explanation / Answer

Req a: NPV at 20% Project B Project A YEAR PVF @20% Cashflows Present value Cashflows Present value 0 1 -3500 -3500 -3500 -3500 1 0.833333 2500 2083.333 600 500 2 0.694444 2000 1388.889 1000 694.4444 3 0.578704 1500 868.0556 1500 868.0556 4 0.482253 1000 482.2531 2000 964.5062 5 0.401878 600 241.1265 2500 1004.694 Net Present Value 1564 532 Req b: NPV at 10% Project B Project A YEAR PVF @10% Cashflows Present value Cashflows Present value 0 1 -3500 -3500 -3500 -3500 1 0.909091 2500 2272.727 600 545.4545 2 0.826446 2000 1652.893 1000 826.4463 3 0.751315 1500 1126.972 1500 1126.972 4 0.683013 1000 683.0135 2000 1366.027 5 0.620921 600 372.5528 2500 1552.303 Net Present Value 2608 1917 Req c: At 10% cost of capital both projects have positive NPV, but Project-A shall be selected. Howevver, at 20% cost, Project A shall be selected.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.