IRR : A project's NPV profile graph intersects the Y-axis at 0% cost of capital and Intersects the X-axis at the project's where NPV = 0). The Y-axis intersection point represents the project's undiscounted NPW. The point at which 2 projects' profiles cross one another is the crossover rate. The crossover rate can be found by calculating the IRR or the differences in the projects' cash flows (Project Delta). A steep NPV profile indicates that increases in the cost of capital lead to large declines in NPV. If a project has most of its cash flows coming in later years, its NPV will decline sharply if the cost of capital increases; but a project whose cash flows come earlier will not be severely penalized by high capital costs. The significance of the crossover rate is that at any cost of capital greater than the crossover rate, the NPV and IRR methods will provide the same conclusion for evaluating mutually exclusive projects. However, at any cost of capital less crossover rate, the NPV and IRR methods' conclusions will conflict. In that situation, the NPV will always provide the correct project acceptance result. Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is . than the method 10%. 3 2 1 400 330 230 Project A Project B -1,200 -1,200 600 410 300 740 210 What is Project Delta's IRR? Do not round intermediate calculations. Round your answer to two decimal places % Hide Feedback Partially Correct Check My Work Feedback Review the IRR equation The solution for IRR is a percentage rate not a dollar value, The IRR calculation is not dependent on the firm's WACC. Don't forget the minus sign for the Year 0 cash flow. Don't forget to include the Year O cash flow in your calculation. At - Project ACR - Project B Cft, or vice versa; but once you begin the calculation you can't switch the subtraction order, What is the significance of this IRA