Question
In: Finance
Consider the following two mutually exclusive projects X and Y: X Y Year 0 -$5,500 -$4,500...
- Consider the following two mutually exclusive projects X and Y:
|
X |
Y |
|
|
Year 0 |
-$5,500 |
-$4,500 |
|
Year 1 |
$3,000 |
$2,800 |
|
Year 2 |
$2,000 |
$2,000 |
|
Year 3 |
$2,000 |
$1,000 |
|
Year 4 |
$1,000 |
$1,000 |
-
- What is the crossover rate for these two projects?
-
- Sketch the NPV profiles for X and Y (point out the IRR of each project and the crossover rate in the NPV profiles).
- The required return is 10%. Which project should be chosen?
Solutions
Expert Solution
The formulas and the inputs used is as follows:
The result is as follows:
a. The crossover rate is 7.13%
b. The IRR of each project and the crossover rate is depicted in the NPV profile.
c. If the required return is 10%, project Y should be selected based on NPV technique. Find the calculation in the above table.
jeff jeffy answered 3 years agoRelated Solutions
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0...
Consider the following two
mutually exclusive projects:
Year
Cash Flow
(X)
Cash Flow
(Y)
0
–$
19,400
–$
19,400
1
8,700
9,800
2
8,800
7,650
3
8,650
8,550
Calculate the IRR for each project. (Do not round
intermediate calculations. Enter your answers as a percent rounded
to 2 decimal places, e.g., 32.16.)
IRR
Project X
%
Project Y
%
What is the crossover rate for these two projects? (Do
not round intermediate calculations. Enter your answer...
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0 –$...
Consider the following two mutually exclusive projects:
Year
Cash Flow (X)
Cash Flow (Y)
0
–$
23,000
–$
23,000
1
10,490
12,000
2
10,900
9,360
3
10,500
10,400
Calculate the IRR for each project. (Do not round
intermediate calculations and enter your answers as a percent
rounded to 2 decimal places, e.g., 32.16.)
What is the crossover rate for these two projects? (Do
not round intermediate calculations and enter your answer as a
percent rounded to 2 decimal places, e.g.,...
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0 –$...
Consider the following two mutually exclusive projects:
Year
Cash Flow
(X)
Cash Flow
(Y)
0
–$
20,900
–$
20,900
1
9,075
10,550
2
9,550
8,025
3
9,025
8,925
A) Calculate the IRR for each project
B)
What is the crossover rate for these two projects?
C) What is the NPV of Projects X and Y at discount rates of 0
percent, 15 percent, and 25 percent?
Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0 -$23,400...
Consider the following two mutually exclusive projects:
Year
Cash Flow (X)
Cash Flow (Y)
0
-$23,400
-$23,400
1
$13,100
$9,200
2
$9,480
$10,620
3
$7,890
$11,180
Sketch the NPV profiles for X and Y over a range of discount
rates from 0 to 25 percent. What is the crossover rate for these
two projects?
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$...
Consider the following two mutually exclusive
projects:
Year
Cash Flow (A)
Cash Flow (B)
0
–$
364,000
–$
52,000
1
46,000
25,000
2
68,000
22,000
3
68,000
21,500
4
458,000
17,500
Whichever project you choose, if any, you require a return of 11
percent on your investment.
a-1. What is the payback period for each project?
(Do not round intermediate calculations and round your
answers to 2 decimal places, e.g., 32.16.)
a-2. If you apply the payback criterion, which...
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0...
Consider the following two mutually exclusive projects:
Year
Cash Flow (A)
Cash Flow (B)
0
–$199,124
–$15,993
1
25,800
5,691
2
51,000
8,855
3
54,000
13,391
4
416,000
8,695
Whichever project you choose, if any, you require a 6 percent
return on your investment.
a. What is the payback period for Project
A?
b. What is the payback period for Project
B?
c. What is the discounted...
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0...
Consider the following two mutually exclusive projects:
Year
Cash Flow
(A)
Cash Flow
(B)
0
–$
360,000
–$
45,000
1
35,000
23,000
2
55,000
21,000
3
55,000
18,500
4
430,000
13,600
Whichever project you choose, if any, you require a 14 percent
return on your investment.
a-1
What is the payback period for each project? (Do not
round intermediate calculations and round your answers to 2 decimal
places, e.g., 32.16.)
Payback period
Project A
years
Project...
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0...
Consider the following two mutually exclusive projects:
Year
Cash Flow (A)
Cash Flow (B)
0
–$260,730
–$15,011
1
27,800
4,942
2
56,000
8,023
3
55,000
13,040
4
426,000
9,138
Whichever project you choose, if any, you require a 6 percent
return on your investment.
a. What is the payback period for Project
A?
b. What is the payback period for Project
B?
c. What is the discounted...
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0...
Consider the following two
mutually exclusive projects:
Year
Cash Flow
(A)
Cash Flow
(B)
0
–$251,835
–$15,247
1
25,100
4,828
2
55,000
8,358
3
50,000
13,472
4
385,000
8,102
Whichever project you choose, if
any, you require a 6 percent return on your investment.
a.What is the discounted payback period for Project A?
b.What
is the discounted payback period for Project B?
Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0...
Consider the following two
mutually exclusive projects:
Year
Cash Flow
(A)
Cash Flow
(B)
0
–$251,835
–$15,247
1
25,100
4,828
2
55,000
8,358
3
50,000
13,472
4
385,000
8,102
Whichever project you choose, if
any, you require a 6 percent return on your investment.
a.What is the discounted payback period for Project A?
b.What
is the discounted payback period for Project B?
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