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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
$$
Select the correct graph for NPV profiles for Projects A and B
The correct graph is
graph C
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 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
should be selected.
Calculate the two projects' NPVs if each project's cost of capital was Do not round intermediate calculations. Round your answers to the nearest cent.
Project A: $
Project B: $
What would be the proper choice?
Project B
is the proper choice.
What is each project's MIRR at a cost of capital of Hint: Consider Period as the end of Project Bs 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 Hint: Consider Period as the end of Project Bs 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 less than the crossover rate, both the NPV and IRR methods lead to the same project selections.
II The crossover rate has no significance in capital budgeting analysis.
III. 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
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