Question

Anderson Associates is considering two mutually exclusive projects that have the following cash flows: Project A Project B Year Cash Flow Cash Flow 0 -$10,000 -$8,000 1 4,000 7,000 2 2,000 3,000 3 6,000 1,000 4 8,000 3,000 At what cost of capital do the two projects have the same net present value? (That is, what is the crossover rate?) Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.,

Answer 1

Solution :

The cost of capital at which the two projects have the same net present value, that is the crossover rate = 20.9355 %

= 20.94 % ( when rounded off to two decimal places )

Thus the solution is 20.94

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.