Question
NPV and IRR Analysis Cummings Products Company is considering two mutually exclusive investments whose expected net cash flows are as follows: EXPECTED NET CASH FLOWS
NPV and IRR Analysis
Cummings Products Company is considering two mutually exclusive investments whose expected net cash flows are as follows:
| EXPECTED NET CASH FLOWS | ||||
| Year | Project A | Project B | ||
| 0 | -$350 | -$620 | ||
| 1 | -528 | 210 | ||
| 2 | -219 | 210 | ||
| 3 | -150 | 210 | ||
| 4 | 1,100 | 210 | ||
| 5 | 820 | 210 | ||
| 6 | 990 | 210 | ||
| 7 | -325 | 210 | ||
- Construct NPV profiles for Projects A and B.
Select the correct graph.
The correct graph is -Select-graph Agraph Bgraph Cgraph DItem 1 .
- What is each project's IRR? Do not round intermediate calculations. Round your answers to two decimal places.
Project A: %
Project B: %
-
Calculate the two projects' NPVs, if each project's cost of capital was 10%. Do not round intermediate calculations. Round your answers to the nearest cent.
Project A: $
Project B: $
Which project, if either, should be selected?
Project A or Project B should be selected.
Calculate the two projects' NPVs, if each project's cost of capital was 18%. Do not round intermediate calculations. Round your answers to the nearest cent.
Project A: $
Project B: $
What would be the proper choice?
Project A or Project B is the proper choice.
- What is each project's MIRR at a cost of capital of 10%? (Hint: Consider Period 7 as the end of Project B's life.) Do not round intermediate calculations. Round your answers to two decimal places.
Project A: %
Project B: %
What is each project's MIRR at a cost of capital of 18%? (Hint: Consider Period 7 as the end of Project B's life.) Do not round intermediate calculations. Round your answers to two decimal places.
Project A: %
Project B: %
- What is the crossover rate? Do not round intermediate calculations. Round your answer to two decimal places.
%
What is its significance?
I. If the cost of capital is greater than the crossover rate, both the NPV and IRR methods will lead to the same project selection. II. If the cost of capital is less than the crossover rate, both the NPV and IRR methods lead to the same project selections. III. The crossover rate has no significance in capital budgeting analysis. select one
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Negative Interest Rates And Financial Stability Lessons In Systemic Risk
Authors: Karol Rogowicz, Malgorzata Iwanicz Drozdowska
1st Edition
1032319496, 1000787826, 9781032319490, 9781000787825
