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 Project A Project B - $340 Year 0 $630 1 -528 210 2 -219 210 3 - 150 210 4 1,100 210 5 820 210 6 990 210 2 325 210 B a. Select the correct graph for NPV profiles for Projects A and B. A VPMS) 1400 VPVS) 1400 1200 1200+ 1000 1000 B00 Project A 800 Project B 600 600 400 4001 D 1400 1400 1200 1200 1000 1000 edo Project 800N Project B 6001 600 400 400 Project B Piget A 200 200 Cost of cap capila soda 20 5 200 -400 20 capitales Cost of -200 -4001 c D VPVS) 1400 VPVS) 1400 1200 1200 1000+ 1000 800 Project A 800 Project A 600 600 400 400 Project B 200 200- Project B 20 25 30 20 25 30 -5 200 cost of capitak ons 1 -200 costes cook -4001 -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 11%. Do not round Intermediate calculations. Round your answers to the nearest cent. Project A: $ Project B: $ Which project, if either should be selected? 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. Select Project A: $ Project B: $ What would be the proper choice? Select Jis the proper choice. 1. What is each project's MIRR at a cost of capital of 11%7. (Hint: Consider Period 7 as the end of Project 8'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 1897 (Hint: Consider Period 7 as the end of Project B's life.) Do not round Intermediate 96 -Select % is the proper choice. d. What is each project's MIRR at a cost of capital of 11% (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: e. What is the crossover rate? Do not round intermediate calculations, Round your answer to two decimal places. % What is its significance? 1. If the cost of capital is greater than the crossover rate, both the NPV and IRR methods will lead to the same project selection. 11. 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
