1. You are a financial analyst for Damon Electronics Company. The director of capital budgeting has asked you to analyze two proposed capital investments, Projects X and Y. Each project has a cost of $10,000, and the required rate of return for each project is 12 percent. The projects expected net cash flows are as follows:

Expected Net Cash Flows

Year Project X Project Y

0 $(10,000) $(10,000)

1 6,500 3,500

2 3,000 3,500

3 3,000 3,500

4 1,000 3,500

1. Calculate each projects traditional payback period (PB), net present value (NPV) and internal rate of return (IRR).

2. Calculate each projects discounted PB.

3. Calculate the cross over IRR. What does this cross over rate mean and how might it be used to determine the best project?