In: Finance
Looking for assistance with the "sketch/graph" part of the below question:Consider the following projects, X and Y where the firm can only choose one. Project X costs $600 and has cash flows of $400 in each of the next 2 years. Project Y also costs $600, and generates cash flows of $500 and $275 for the next 2 years, respectively. Sketch a net present value profile for each of these projects together in one well labeled graph, indicating the point at which one will be indifferent between projects X & Y.
Please refer to below spreadsheet for calculation and answer. Cell reference also provided.
Cell reference -
In above graph, we can see at discount rate 25% both Projects have same NPV thus, 25% is their Cross over rate. Projects at cross over rate are equally good.
Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.