St. Rose Hospital expects Projects A and B to generate the following cash flows:

a. Determine the NPV for both projects using a cost of capital of 20 percent.

b. Determine the NPV for both projects using a cost of capital of 10 percent.

c. 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.

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Givens (in '000s) 1 Initial investment 2 Net operating cash flows for Project A 3 Net operating cash flows for Project B Years 0 1 2 3 4 5 ($3,500) $2,500 $2,000 $1,500 $1,000 $600 $600 $1,000 $1,500 $2,000 $2,500