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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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