Question
In: Finance
Seether inc has the following two mutually exclusive projects available. What is the crossover rate for...
Seether inc has the following two mutually exclusive projects available.
What is the crossover rate for these two projects? What is the NPV of each project at the crossover rate?
Year Project R Project S
| 0 | -45000 | -76000 |
| 1 | 17000 | 20000 |
| 2 | 19000 | 20000 |
| 3 | 21000 | 35000 |
| 4 | 9000 | 30000 |
| 5 | 7000 |
10000 |
Solutions
Expert Solution
Cross Over Rate :
Initial Cash Investment = $ 76000 - $ 45000
= 31000
Year 1 Cash Flow = $20000-17000
= $ 3000
Year 2 Cash Flow = $20000-19000
= $ 1000
Year 3 Cash Flow = $35000-21000
= $ 14000
Year 4 Cash Flow = $ 30000-9000
= $ 21000
Year 5 Cash Flow = $10000-7000
=$ 3000
Based on the above calculations, IRR =
31000 =3000/ (1.0x) +1000/(1.0x)^2 + 14000/ (1.0x)^3+21000/ (1.0x)^4+3000/ (1.0x)^5
Hence, x= 9.239%
crossover rate for these two projects = 9.239%
Net Present Value = Present Value of Cash Inflows - Present Value of cash Outflows
Project R , NPV =
= [17000*1/(1.09239)^1+19000*1/(1.09239)^2+21000*1/(1.09239)^3+9000*1/(1.09239)^4+7000*1/(1.09239)^5]- 45000
= $13,414.06
Answer : NPV of Project R = $13,414.06
NPV of Project S =
= [20000*1/(1.09239)^1+20000*1/(1.09239)^2+35000*1/(1.09239)^3+30000*1/(1.09239)^4+10000*1/(1.09239)^5]- 76000
= $ 13,413.82
Answer : NPV of Project R = $13,413.82
jeff jeffy answered 1 year agoRelated Solutions
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Year
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Project S
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–$
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–$
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1
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2
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Requirement
1:
What is the crossover rate for these two projects?
(Do not round intermediate
calculations. Enter your answer as a percentage
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32.16).)
Internal rate of
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%
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rev: 05_02_2019_QC_CS-167236, 05_09_2019_QC_CS-168369,
09_24_2019_QC_CS-182411
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