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A firm is considering two mutually exclusive projects A and B. The firm, which has a 12% cost of capital, has estimated the cash flows
A firm is considering two mutually exclusive projects A and B. The firm, which has a 12% cost of capital, has estimated the cash flows from each project as shown in the following table:
| Year | A | B |
| 0 | -$600 | -$800 |
| 1 | 700 | 0 |
| 2 | 150 | 100 |
| 3 | 150 | 1,500 |
- Calculate the NPV of each project.
- Calculate the IRR for each project.
- What is the crossover rate? (This should be calculated; show all work).
- What is your recommendation to the firm? Please explain carefully and be specific.
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