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Assume you are presented with the following mutually exclusive investments whose expected net cash flows are as follows: EXPECTED NET CASH FLOWS: Year Project A
Assume you are presented with the following mutually exclusive investments whose expected net cash flows are as follows: EXPECTED NET CASH FLOWS: Year Project A Project B 0 $400 $650 1 528 210 2 219 210 3 150 210 4 1,100 210 5 820 210 6 990 210 7 325 210 1. Construct NPV profiles for Projects A and B. 2. What is each projects IRR? 3. If each projects cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice? 4. What is each projects MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project Bs life.) 5. What is the crossover rate, and what is its significance
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