Woodson Inc. has two possible projects, Project A and Project B with the following cash flows:
Year Project AProject B -
0-150,000-100,000
1100,00045,000
2105,00065,000
340,00080,000
At what cost of capital do the two projects have the same net present value (NPV)?
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A. B. C. D. E.Explanation
To determine the crossover rate, find the differential cash flows between the 2 projects and then calculate the IRR of those differential cash flows. tProject change, A - B
0-50,000
155,000
240,000
3-40,000
IRR = 21.7%.