McCarver Inc. is considering the following mutually exclusive projects:
Project A Project B -
TimeCash FlowCash Flow -
0-$5,000-$5,000
1200 3,000
2800 3,000
33,000 800
45,000 200
At what cost of capital will the net present value of the two projects be the same?
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A. B. C. D. E.A
Find the differences between the two projects' respective cash flows as follows:
(Project A CF - Project B CF).
CF(0) = -5,000 - (-5,000) = 0.
CF(1) = 200 - 3,000 = -2,800.
CF(2) = -2,200.
CF(3) = 2,200.
CF(4) = 4,800.
Enter these CFs and find the IRR = 16.15% which is the crossover rate.