Kaiser Oakland Practice expects Projects 1 and 2 to generate the following cash flows: Problem 7-15 Kaiser Oakland Practice Project 1 ( in thousands) Years 0 1 2 3 4 5 Givens 1 Initial investment ($2,800) 2 Net operating cash flows $300 $500 $800 $1,200 $2,000 3 Hypothesized discount rate for Project 1, Part b 15% 4 Hypothesized discount rate for Project 2, Part b 10% 5 Cost of capital for Part c 12% Project 2 ( in thousands) Years 0 1 2 3 4 5 Givens 1 Initial investment ($5,000) 2 Net operating cash flows $1,300 $1,300 $1,300 $1,300 $1,300 a. Determine the payback for project 1 and project 2. b. Determine the IRR for project 1 and project 2. c. Determine the NPV for project 1 and project 2 at a cost of capital of 12%. d. Which project should Kaiser Oakland invest in?
Kaiser Oakland Practice expects Projects 1 and 2 to generate the following cash flows:
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Problem 7-15 Kaiser Oakland Practice |
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Project 1 ( in thousands) |
Years |
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5 |
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Givens |
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1 |
Initial investment |
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($2,800) |
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2 |
Net operating cash flows |
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$300 |
$500 |
$800 |
$1,200 |
$2,000 |
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Hypothesized discount rate for Project 1, Part b |
15% |
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Hypothesized discount rate for Project 2, Part b |
10% |
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5 |
Cost of capital for Part c |
12% |
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Project 2 ( in thousands) |
Years |
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1 |
2 |
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5 |
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Givens |
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1 |
Initial investment |
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($5,000) |
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2 |
Net operating cash flows |
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$1,300 |
$1,300 |
$1,300 |
$1,300 |
$1,300 |
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a. Determine the payback for project 1 and project 2.
b. Determine the IRR for project 1 and project 2.
c. Determine the NPV for project 1 and project 2 at a cost of capital of 12%.
d. Which project should Kaiser Oakland invest in?
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