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 -$280 -$430

1 -387 134

2 -193 134

3 -100 134

4 600 134

5 600 134

6 850 134

7 -180 134

a. Construct NPV profiles for Projects A and B.

a. Construct NPV profiles for Projects A and B. Select the correct graph. A B NPV($) NPV($) #+ 800+ Project B 800+ Project A 600 600+ 4004 400 200+ 200+ Project A Project B 5 10 15 20 25 -5 5 10 15 -200+ Cost of capital(%) -200+ Cost of capital(%) 20 25 -400 1 -400 1S 10 5 10 1 S 20 25 Cast of capitalOQ Cast of capitaIOQ The correct graph is . 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 you were told that each project's cost of capital was 10%. Do not round intermediate calculations. Round your answers to the nearest cent. Project A $ lJ Questions Navigation Menu , Which project, if either, should be selected? Calculate the two projects' NPVs, if the 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? 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 18%? (Hint: Consider Period 7 as the end of Project B's life.) Do not round intermediate calculations. Round your answer to two decimal places. Project A % I Project B I I % e. What is the crossover rate? Do not round intermediate calculations. Round your answer to two decimal places. |\"/cn What is its significance? 1. The crossover rate has no significance in capital budgeting analysis. 11. If the cost of capital is greater than the crossover rate, both the NPV and IRR methods will lead to the same project selection. 111. If the cost of capital is less than the crossover rate, both the NPV and IRR methods lead to the same project selections