Question

Anderson Associates is considering two mutually exclusive projects that have the following cash flows:

Project A

1. -10,000

2. 3,000

3. 2,000

4. 6,000

5. 8,000

Project B

1. -8,000

2. 7,000

3. 3,000

4. 1,000

5. 3,000

At what cost of capital do the two projects have the same net present value? (That is, what is the crossover rate?)

Answer 1

Project B Diff -B2-C2 -B3-C3 -B4-C4 =B5-C5 |-B6-C6 -IRR(D2 : D6) | Year Project A 0 S(10,000.00) $(8,000.00) $(2,000.00) 0 1 S 3,000.00 $ 7,000.00 $ (4,000.00) 1 2 $ 2,000.00 3,000.00 $ (1,000.00) 2 3 S 6,000.00 $ 1,000.00 5,000.00 3 4 S 8,000.00 3,000.00 5,000.004 Diff Year Project A -10000 3000 2000 6000 8000 Project B -8000 7000 3000 1000 3000 Cross over rate 14.39% Cross over rate