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Examine the following NPV curve and answer the following questions: 15,000 0.0%, 11,000 10,000 0.0%, 4,500 5,000 4.7%, 4,578 (5,000) (10,000) NPV 4.7 %
Examine the following NPV curve and answer the following questions: 15,000 0.0%, 11,000 10,000 0.0%, 4,500 5,000 4.7%, 4,578 (5,000) (10,000) NPV 4.7 % 0 8.6% 0 0.0% 2.0% 4.0% 8.0% 0.0% 12.0% 14.0% 16.0 % 18.0% 20.0% --Project A -Project B 12.8% (4,267) 8.6%, -3194 12.8%, (6,158) 16.3%, (7,276) 16.3%, (8,238) 20.0%, (10,199 ) 20.0%, (10,247) (15,000) Figure 1 NPV (a) At a 4.0% cost of capital, is Project A a positive NPV project? Project B? (b) What is the IRR of Project A? Project B? (c) At what cost of capital are the NPVS of the 2 projects roughly equal? (d) Assuming you expect interest rates to remain in the 7-10% range over the horizon of these projects, should you invest in Project A, Project B, or neither? Explain.
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