Question
Consider that Luxio has identified the following two mutually exclusive projects: Cash Flow (A) Year 0.........-34000 Year 1..........16500 Year 2.........14000 Year 3.........10000 Year 4..........6000 Cash
Consider that Luxio has identified the following two mutually exclusive projects:
Cash Flow (A)
Year 0.........-34000
Year 1..........16500
Year 2.........14000
Year 3.........10000
Year 4..........6000
Cash Flow (B)
Year 0........-$34,000
Year 1...........5,000
Year 2.........10,000
Year 3........18,000
Year 4........19,000
The required return is 11%.
Question: Over what range of discount rates would the company choose project A? At what discount rate would the company be indifferent between these two projects? Explain.
P.S. I have calculated the IRR and NPV for 11% required return.
Project A: IRR= 16.60% NPV= $3,491.88
Project B: IRR= 15.72% NPV= $4,298.06
I have also calculated the crossover rate: 13.75%.
I'm having a hard time with the rest. Thank you.
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