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Introduction Use the following information for Questions 1 through 3: Assume you are given these mutually exclusive investments with the expected net cash flows as
Introduction
Use the following information for Questions 1 through 3:
Assume you are given these mutually exclusive investments with the expected net cash flows as in the table:
| Year | Project A | Project B |
|---|---|---|
| 0 | -400.00 | -670 |
| 1 | -528.00 | 210 |
| 2 | -219.00 | 210 |
| 3 | -250.00 | 210 |
| 4 | 1100.00 | 210 |
| 5 | 820.00 | 210 |
| 6 | 990.00 | 210 |
| 7 | -325.00 | 210 |
Respond to the questions:
Question 1:
- What is each projects IRR?
- 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?
Question 2:
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.)
Question 3:
What is the crossover rate, and what is its significance?
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