Question
Please answer all parts, thank you. Dereks Donuts is considering two mutually exclusive investments. The projects expected net cash flows are as follows: Expected Net
Please answer all parts, thank you.
Dereks Donuts is considering two mutually exclusive investments. The projects expected net cash flows are as follows:
Expected Net Cash Flows
Year Project A Project B
0 $(300) $(405)
1 (387) 134
2 (193) 134
3 (100) 134
4 500 134
5 500 134
6 850 134
7 100 0
a.Construct NPV profiles for Projects A and B.
b. What is each projects IRR?
c. If you were told that each projects required rate of return was 12 percent, which project should be selected? If the required rate of return was 15 percent, what would be the proper choice?
d. Looking at the NPV profiles constructed in part a, what is the approximate crossover rate, and what is its significance?
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