In: Finance
There are two projects that the company is considering:
Project A costs 10,000 to implement today, and it brings subsequent cash flows of 5,000 at the end of year 1; 4,000 at the end of year 2; 6,000 at the end of year 3.
Project B's initial cost is 12,000, and subsequent cash flows are 6,000 per year for 3 years.
WACC is 8% for both projects.
a. Calculate NPV and IRR for each project, and decide which one to recommend.
b. Calculate MIRR for projects A and B. Which project would you recommend based on MIRR?
c. Find the crossover rate. What does this rate represent? Describe in one sentence.