Question

As the director of Big Sky Corp, you are evaluating two mutually exclusive projects with the following net cash flow:

Year     Cash Flow X ($)            Cash Flow Y ($)

0          -100,000                       -100,000

1          60,000                          20,000

2          30,000                          20,000

3          30,000                          40,000

4          10,000                          60,000

5          10,000                          20,000

What is the discount payback for project Y if the interest rate is 10% per year?

4.26 years

3.86 years

4.16 years

2.36 years

What is the NPV for project Y if the discount rate is 10% per year?

$21,588.77

$21,624.87

$18,162.57

$21,323.67

What is the IRR for Project Y?

15.150%

It has no IRR

14.150%

16.150%

What is the crossover rate for the two projects?

13.81%

15.81%

12.81%

14.81%

The intercept on the x-axis for project Y is…?

16.15%

14.15%

15.15%

It does not intercept X-axis

PLEASE show your work!

Answer 1

1.

Discounted payback for project Y is calculated in excel and screen shot provided below:

Discounted payback for project Y is 3.86 years.

Option (B) is correct answer.

2.

NPV of project X and Y is calculated in excel and screen shot provided below:

NPV of project X is $14,917,.63 and NPV of project Y is $18,162.57.

Option (C) is correct answer.

3.

IRR of project X and Y is calculated in excel and screen shot provided below:

IRR of project X is 18.11% and NPV of project Y is 16.15.

Option (D) is correct answer.

4.

crossover rate is the rate at which NPV of both project is equal. So, crossover rate is calculated in excel and screen shot provided below:

Crossover rate is 12.806%.

Option (C) is correct answer.

5.

from the above graph we can see that The intercept on the x-axis for project Y is 16.15%.

Option (A) is correct answer.