What is the crossover rate and what is its significance

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Assignment

Textbook: Corporate Finance: A Focused Approach. Chapter 10. The Basics of Capital Budgeting: Evaluating Cash Flows Spreadsheet Problem.

	Expected Net Cash Flows
Year	Project A	Project B
0	-$375	-$575
1	-300	190
2	-200	190
3	-100	190
4	600	190
5	600	190
6	926	190
7	-200	0

Question 1. If each project's cost of capital is 12%, which project should be selected? If the cost of capital is 18%, what project is the proper choice?

Question 2. Construct NPV profiles for Projects A and B.

Question 3. What is each project's IRR?

Question 4. What is the crossover rate, and what is its significance?

Question 5. What is each project's MIRR at a cost of capital of 12%? At r = 18%? (Hint: Consider Period 7 as the end of Project B's life.)

Question 6. What is the regular payback period for these two projects?

Question 7. At a cost of capital of 12%, what is the discounted payback period for these two projects?

Question 8. What is the profitability index for each project if the cost of capital is 12%?

Reference no: EM133591858

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