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MC algo 5-12 Calculating Crossover Rate You are evaluating two projects with the following cash flows:...
MC algo 5-12 Calculating Crossover Rate You are evaluating two projects with the following cash flows: Year Project X Project Y 0 −$547,200 −$516,500 1 218,600 208,300 2 228,500 218,100 3 235,700 226,000 4 195,400 186,800 What is the crossover rate for these two projects? Multiple Choice .66% 22.35% 11.72% 23.01% 10.65%
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Expert Solution
| Project Y-Project X Cash flow values are as follows | |||||
| Year | Cash flow stream | ||||
| 0 | 30700 | ||||
| 1 | -10300 | ||||
| 2 | -10400 | ||||
| 3 | -9700 | ||||
| 4 | -8600 | ||||
| Incremental IRR is calculated based on difference of the cash flow of the two projects | |||||
| Incremental CF | |||||
| IRR is the rate at which NPV =0 | |||||
| IRR | 10.65% | ||||
| Year | 0 | 1 | 2 | 3 | 4 |
| Cash flow stream | 30700 | -10300 | -10400 | -9700 | -8600 |
| Discounting factor | 1 | 1.106503 | 1.224348 | 1.354744 | 1.499028 |
| Discounted cash flows project | 30700 | -9308.61 | -8494.32 | -7160.02 | -5737.051 |
| NPV = Sum of discounted cash flows | |||||
| NPV Incremental CF = | -3.49231E-06 | ||||
| Where | |||||
| Discounting factor = | (1 + IRR)^(Corresponding period in years) | ||||
| Discounted Cashflow= | Cash flow stream/discounting factor | ||||
| IRR= | 10.65% | ||||
jeff jeffy answered 1 year agoRelated Solutions
You are considering the following two mutually exclusive projects. The crossover rate between these two projects...
You are considering the following two mutually exclusive
projects. The crossover rate between these two projects is ___
percent and Project ___ should be accepted if the required return
is greater than the crossover rate.
Year
Project A
Project B
0
−$26,000
−$26,000
1
9,500
17,590
2
9,500
7,500
3
17,500
9,610
rev: 05_02_2019_QC_CS-167236, 05_09_2019_QC_CS-168369,
09_24_2019_QC_CS-182411
Multiple Choice
18.39%; A
11.89%; B
16.97%; B
11.89%; A
16.97%; A
You are considering the following two mutually exclusive projects. The crossover rate between these two projects...
You are considering the following two mutually exclusive
projects. The crossover rate between these two projects is ___
percent and Project ___ should be accepted if the required return
is greaterthan the crossover rate.
Year
Project A
Project B
0
−$30,000
−$30,000
1
11,500
19,630
2
11,500
9,500
3
19,500
11,650
You are considering the following two mutually exclusive projects. The crossover rate between these two projects...
You are considering
the following two mutually exclusive projects. The crossover rate
between these two projects is ___ percent and Project ___ should be
accepted if the required return is greater than the crossover
rate.
Year
Project A
Project B
0
−$24,000
−$24,000
1
8,500
16,570
2
8,500
6,500
3
16,500
8,590
Multiple Choice
12.17%; B
12.17%; A
17.82%; A
16.49%; A
16.49%; B
You are considering the following two mutually exclusive projects. The crossover rate between these two projects...
You are considering the following two mutually exclusive
projects. The crossover rate between these two projects is ___
percent and Project ___ should be accepted if the required return
is greater than the crossover rate.
Year
Project A
Project B
0
−$39,000
−$39,000
1
21,500
13,720
2
13,500
11,500
3
13,500
25,600
12.85%; B
12.52%; A
12.52%; B
12.93%; A
12.93%; B
A company is evaluating two possible projects with the following cash flows. Suppose that the projects...
A company is evaluating two possible projects with the following
cash flows. Suppose that the projects are contingent. Which answer
describes the correct decision if the firm's required rate of
return is 15%?
Year
0
1
2
3
4
Project 1
-$50
$10
$15
$10
$20
Project 2
-$30
$20
$15
$30
$10
Question 16 options:
Accept both projects.
Accept project 1 and reject project 2.
Accept project 2 and reject project 1.
Reject both projects.
A company is evaluating two possible projects with the following cash flows. Suppose that the projects...
A company is evaluating two possible projects with the following
cash flows. Suppose that the projects are contingent. Which answer
describes the correct decision if the firm's required rate of
return is 12%?
Year
0
1
2
3
4
Project 1
-$50
$15
$15
$5
$5
Project 2
-$30
$20
$10
$10
$10
The following are two independent projects that you are evaluating. The first project has cash flows...
The following are two independent projects that you are
evaluating. The first project has cash flows of −$161,900, $60,800,
$162,300, and -$75,000 for Years 0 to 3, respectively. The second
project has cash flows of −$175,600, $261,800, -$165,000, $145,000
and -$75,000. Which of these, best summarizes your situation?
A. Project 1 has 2 IRRs and Project 2 has 2 IRRs. Therefore, we
should not use IRR to evaluate the projects.
B. Project 1 has 1 IRR and Project 2 has...
You are evaluating two mutually exclusive projects. The cash flows for each are:
You are evaluating two mutually exclusive
projects. The cash flows for each are:
Project
A Project
B
Year
0 ($60,000) ($85,000)
Year
1 $20,000 $22,000
Year
2 $35,000 $25,000
Year
3 $20,000 $30,000
Year
4 $25,000 $25,000
Year
5 $15,000
Year
6 $10,000
Year
7 $10,000
Year
8 $10,000
Assume that, if needed, each project is repeatable with no
change in cash flows. Your cost of capital is 13%.
Using the replacement chain approach, which project would you
chose to...
A). You are evaluating a project with the following cash flows: initial investment is $-12, and...
A).
You are evaluating a project with the following cash flows:
initial investment is $-12, and the expected cash flows for years 1
- 3 are $10, $11 and $17 (all cash flows are in millions of
dollars). What is this projects NPV? The company's WACC is 10%.
B).
You are evaluating a project with an initial investment of $16.9
million dollars, and expected cash flows of $7 million dollars each
for years 1-3. What is the project's simple payback?...
You are evaluating two projects with the following cash flows: Year Project X Project Y 0...
You are evaluating two projects with the following cash
flows:
Year
Project X
Project Y
0
−$552,600
−$521,000
1
217,700
207,400
2
227,600
217,200
3
234,800
225,100
4
194,500
185,900
What is the crossover rate for these two projects?
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