Cummings Products Company is considering two mutually exclusive investments whose expected net cash flows are as follows:
Year
Project A Project B 0
($690)
($450)
1
300
290
2
310
290
3
320
290
4
330
290
5
340
290
6
350
290
7
360
290
8
370
290
e. What is the crossover rate? SHOW YOUR WORK AND EXPLAIN YOUR ANSWER
Cummings Products Company is considering two mutually exclusive investments whose expected net cash flows are as follows:
| Year | Project A | Project B |
| 0 | ($690) | ($450) |
| 1 | 300 | 290 |
| 2 | 310 | 290 |
| 3 | 320 | 290 |
| 4 | 330 | 290 |
| 5 | 340 | 290 |
| 6 | 350 | 290 |
| 7 | 360 | 290 |
| 8 | 370 | 290 |
e. What is the crossover rate? SHOW YOUR WORK AND EXPLAIN YOUR ANSWER
Related questions
XYZ Corp. is considering two mutually exclusive investments whose expected net cash flows are as follows:
| EXPECTED NET CASH FLOWS | ||
| Year | Project A | Project B |
| 0 | -$290 | -$400 |
| 1 | -387 | 134 |
| 2 | -193 | 134 |
| 3 | -100 | 134 |
| 4 | 600 | 134 |
| 5 | 600 | 134 |
| 6 | 850 | 134 |
| 7 | -180 | 134 |
A) Calculate the two projects' NPVs, if you were told that each project's cost of capital was 14%. Round your answers to the nearest cent.
B) Calculate the two projects' NPVs, if the cost of capital was 17%. Round your answers to the nearest cent.
Capital budgeting criteria
A company has a 11% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows:
| 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
| Project A | -$300 | -$387 | -$193 | -$100 | $600 | $600 | $850 | -$180 |
| Project B | -$400 | $135 | $135 | $135 | $135 | $135 | $135 | $0 |
a)What is each project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.
Project A $
Project B $
b) What is each project's IRR? Round your answer to two decimal places.
Project A
Project B
c) What is each project's MIRR? (Hint: Consider Period 7 as the end of Project B's life.) Round your answer to two decimal places. Do not round your intermediate calculations.
Project A
Project B
e) Construct NPV profiles for Projects A and B. Round your answers to the nearest cent. Do not round your intermediate calculations. Negative value should be indicated by a minus sign.
| Discount Rate | NPV Project A | NPV Project B |
| 0% | $ | $ |
| 5 | $ | $ |
| 10 | $ | $ |
| 12 | $ | $ |
| 15 | $ | $ |
| 18.1 | $ | $ |
| 24.83 | $ | $ |
F) Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to two decimal places. Do not round your intermediate calculations.
G) What is each project's MIRR at a WACC of 18%? Round your answer to two decimal places. Do not round your intermediate calculations.
Project A
Project B
