Project A and B are mutually exclusive. The cash flows of the two projects are:
Project A: This project has an initial cost of $ 78000 and has annual cash flows for three years of $ 35,300, $ 31,500, and $ 35,000, respectively.
Project B: This project has an initial cost of $ 78000 and has annual cash flows for three years of $ 26,900, $ 30,500, and $ 44,900, respectively.
What is the crossover rate?
At the required return of 5 percent, which project should you accept? Why?
Accept project A and reject project B.
Reject both projects.
Accept both projects.
Accept project B and reject project A.
Accept either one of the projects, but not both.
Show your calculation
Project A and B are mutually exclusive. The cash flows of the two projects are:
Project A: This project has an initial cost of $ 78000 and has annual cash flows for three years of $ 35,300, $ 31,500, and $ 35,000, respectively.
Project B: This project has an initial cost of $ 78000 and has annual cash flows for three years of $ 26,900, $ 30,500, and $ 44,900, respectively.
What is the crossover rate?
At the required return of 5 percent, which project should you accept? Why?
Accept project A and reject project B.
Reject both projects.
Accept both projects.
Accept project B and reject project A.
Accept either one of the projects, but not both.
Show your calculation
Related questions
Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 12 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively.
| Time: | 0 | 1 | 2 | 3 |
| Project A Cash Flow | -29,000 | 19,000 | 39,000 | 10,000 |
| Project B Cash Flow | -39,000 | 19,000 | 29,000 | 59,000 |
Use the PI decision rule to evaluate these projects; which one(s) should be accepted or rejected?
accept A, reject B - A
reject A, accept B - B
accept neither A nor B - C
accept both A and B - D
