The following information is available on two mutually exclusive projects. All numbers are in ‘000s. Project Year 0 Year 1 Year 2 Year 3 Year 4 A $700 $300 $300 $400 $400 B $700 $600 $300 $200 $100 a: If the minimum acceptable rate of return is 10%, which project should be selected using the Net Present Value (NPV) method? Which project should be selected if the Internal Rate of Return (IRR) method is used? b: At what cross‐over rate would the firm be indifferent between the two projects? What is the NPV for both projects at the crossover rate? c: How much should cash flow in year 3 for project B increase or decrease in order for NPV(B) to be equal to NPV(A)?
The following information is available on two mutually exclusive projects. All numbers are in ‘000s.
Project Year 0 Year 1 Year 2 Year 3 Year 4
A $700 $300 $300 $400 $400
B $700 $600 $300 $200 $100
a: If the minimum acceptable
b: At what cross‐over rate would the firm be indifferent between the two projects? What is the NPV for both projects at the crossover rate?
c: How much should cash flow in year 3 for project B increase or decrease in order for NPV(B) to be equal to NPV(A)?
Step by step
Solved in 3 steps
