Question
NPV profile of two mutually exclusive projects. Moulton Industries has two potential projects for the coming year, Project B-12 and Project F-4. The two projects
NPV profile of two mutually exclusive
projects.
Moulton Industries has two potential projects for the coming year, Project B-12 and Project F-4. The two projects are mutually exclusive. The cash flows are listed in the following table:
Cash Flow | Project B-12 | Project F-4 | ||
Year 0 | $4,270,000 | $3,850,000 | ||
Year 1 | $2,050,000 | $0 | ||
Year 2 | $2,050,000 | $990,000 | ||
Year 3 | $2,050,000 | $1,400,000 | ||
Year 4 | $0 | $1,980,000 | ||
Year 5 | $0 | $2,430,000 |
Draw the NPV profile of each project, and determine their crossover rate. If the appropriate hurdle rate is 8% for both projects, which project does Moulton Industries choose?
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