NPV and IRR Analysis Cummings Products Company is considering two mutually exclusive investments whose expected net cash flows are as follows: Year 0 EXPECTED NET CASH FLOWS Project A Project B -5400 -$650 -528 210 -219 210 1 2 3 - 150 210 4 1,100 210 5 820 210 210 990 -325 7 210 a. Construct NPV profiles for Projects A and B. Select the correct graph. B D VPM5) 1 1400+ 1200 VPM) 1 14001 1200 VPVS) 14001 1200 + VPM) 1 1400 1200 1000 800 1000 1000+ 1000 800 800 Project A Project B 800 Project A Project A 6001 600 600 600 400 400+ 400+ 400+ Project B Project A Project B 2004 2001 2007 200 Project B Cost of capital 18x259 20 25 30 2095 15 30 -5 Cost of capilar % 15 25 30 -5 -200 -4001 -5 -200 -4001 20 25 30 -200 cost of capilara45 20 5 -200 -4001 Cost of caplak -4001 The correct graph is -Select- b. What is each project's IRR? Do not round intermediate calculations. Round your answers to two decimal places. Project A: % Project B: % c. 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? -Select- should be selected. Calculate the two projects' NPVs, if each project's cost of capital was 17%. Do not round intermediate calculations. Round your answers to the nearest cent. Project A: $ Project B: $ What would be the proper choice? -Select- v is the proper choice. d. 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 17%? (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: % e. What is the crossover rate? Do not round intermediate calculations. Round your answer to two decimal places. % What is its significance? I. The crossover rate has no significance in capital budgeting analysis. II. If the cost of capital is greater than the crossover rate, both the NPV and IRR methods will lead to the same project selection. III. If the cost of capital is less than the crossover rate, both the NPV and IRR methods lead to the same project selections. -Select
