Question

Cummings Products Company is considering two mutually exclusive investments whose expected net cash flows are as follows:

Year	Project A	Project B
0	-430	-680
1	-528	210
2	-219	210
3	-150	210
4	1100	210
5	820	210
6	990	210
7	-325	210

a.) What is each project's IRR? Do not round intermediate calculations. Round your answers to two decimal places.

b.) Calculate the two projects' NPVs, if each project's cost of capital was 11%. Do not round intermediate calculations. Round your answers to the nearest cent.

c.) Calculate the two projects' NPVs, if each project's cost of capital was 16%. Do not round intermediate calculations. Round your answers to the nearest cent.

d.) What is each project's MIRR at a cost of capital of 11%? (Hint: Consider Period 7 as the end of Project B's life.) Do not round intermediate calculations. Round your answers to two decimal places.

e.) What is each project's MIRR at a cost of capital of 16%? (Hint: Consider Period 7 as the end of Project B's life.) Do not round intermediate calculations. Round your answers to two decimal places.

f.) What is the crossover rate? Do not round intermediate calculations. Round your answer to two decimal places.

What is its significance?

I. If the cost of capital is greater than the crossover rate, both the NPV and IRR methods will lead to the same project selection.

II. If the cost of capital is less than the crossover rate, both the NPV and IRR methods lead to the same project selections.
III. The crossover rate has no significance in capital budgeting analysis.

Answer 1