Looking for assistance with the "sketch/graph" part of the below question:Consider the following projects, X and...

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.

Solutions

Expert Solution

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.

jeff jeffy answered 4 months ago

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