Cost of Capital Comparison Conceptual Overview: Explore how the timing and size of cash flows affect the net present values of two alternative investments. The blue curve (labeled "L") depicts the NPV for a project with larger cash flows later of -$1,000, $100, $300, $400, and $675. The red curve (labeled "S") depicts the NPV for a project with larger cash flows sooner of -$1,000, $500, $400, $300, and $100. Drag on the graph either left or right to change the cost of capital interest rate at which the NPV is evaluated for the two projects. NCF $500 $400 $300 + + + $100 (1+0.1000) (1+0.1000)(1+0.1000) (1+0.10004 = $78.82 Project S: NPV = CF,+ EN TE = -$1,000+ Project L: NPV = CFo + EA COME = -$1,000+ $100 $300 + $400 $675 + + (1+0.1000) (1+0.1000) (1+0.1000) (1+0.1000) = $100.40 NPV ($) 500 400 300 S 200 100.40100 78.82 0 20 -100 Cost of Capital (%) 1. What is the approximate cost of capital for which the two cash flows are about equal? a. 10% b. 12% C. 13.5% d. 14.5% -Select- 2. What is the approximate internal rate of return (IRR) for the Project L cash flow? a. 10% b. 12% C. 13.5% d. 14.5% -Select- 3. What is the approximate internal rate of return (IRR) for the Project S cash flow? a. 10% b. 12% c. 13.5% d. 14.5% -Select- 4. What is the name for the point at which the two projects' NPVs are equal? a. Inflection point b. Equal NPV rate C. Crossover rate d. There is no special name for this point -Select