In: Finance
The following table presents the forecasted cash flows for Project A and Project B. These two projects are mutually exclusive. Construct a NPV profile to illustrate whether the project choice is dependent upon the discount rate. Your NPV profile should include the following information:
a) The NPV of both projects at discount rates of 0%, 10%, and 20%,
b) The IRR of both projects,
c) The incremental IRR (crossover rate) for the two projects (if it exists). Clearly explain the conclusions to be drawn from the NPV profile.
Time | Project A | Project B |
0 | -49000 | -45000 |
1 | 8000 | 25000 |
2 | 10000 | 20000 |
3 | 20000 | 12000 |
4 | 34000 | 5000 |