A B (1,350,000) (1,000,000) 300,000 200,000 300,000 200,000 300,000 200,000 300,000 200,000 300,000 200,000 Given: the...

A	B
(1,350,000)	(1,000,000)
300,000	200,000
300,000	200,000
300,000	200,000
300,000	200,000
300,000	200,000

Given: the cost of capital is 10%

If the projects are independent, which would you accept? Why?
Calculate the crossover rate for projects A and B (show work from using a calculator)

Solutions

Expert Solution

a) the project A is accepted. ehile calculating NPV the both project have the negative NPV but project a is higher than B. for th the conclusion for which project is acceptble, IRR is used . The IRR is shows how much the profit is generated by the project when the present value of cash inflow= Present value of cash out flow, i.e, NPV = 0

IRR of project A= 4%

IRR of project B=0%

here project A is higher IRR, So project A is acceptable.

b) crossover rate is the rate of discount rate which both project have same NPV

here Crossover rate is 13.20%

jeff jeffy answered 1 year ago

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