Answer 1
NPV is given by:
The Discount rate at which NPV = 0 is known as IRR
Answer a)
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Answer b)
NPV profile
Discount Rate | NPV of plan A | NPV of plan B |
0% | $85.60 | $45.20 |
1% | $73.42 | $39.51 |
2% | $62.87 | $34.58 |
3% | $53.69 | $30.29 |
4% | $45.67 | $26.55 |
5% | $38.64 | $23.27 |
6% | $32.46 | $20.38 |
7% | $27.00 | $17.83 |
8% | $22.17 | $15.57 |
9% | $17.87 | $13.56 |
10% | $14.04 | $11.77 |
11% | $10.61 | $10.17 |
12% | $7.53 | $8.74 |
13% | $4.76 | $7.44 |
14% | $2.26 | $6.27 |
15% | -$0.00 | $5.21 |
16% | -$2.06 | $4.25 |
17% | -$3.94 | $3.38 |
18% | -$5.65 | $2.58 |
19% | -$7.22 | $1.84 |
20% | -$8.66 | $1.17 |
21% | -$9.99 | $0.55 |
22% | -$11.21 | -$0.02 |
23% | -$12.34 | -$0.55 |
24% | -$13.39 | -$1.04 |
25% | -$14.37 | -$1.49 |
26% | -$15.27 | -$1.92 |
27% | -$16.12 | -$2.31 |
28% | -$16.91 | -$2.68 |
29% | -$17.65 | -$3.03 |
30% | -$18.34 | -$3.35 |
31% | -$18.99 | -$3.66 |
32% | -$19.61 | -$3.94 |
33% | -$20.18 | -$4.21 |
34% | -$20.73 | -$4.47 |
35% | -$21.24 | -$4.71 |
36% | -$21.73 | -$4.93 |
37% | -$22.19 | -$5.15 |
38% | -$22.63 | -$5.35 |
39% | -$23.05 | -$5.55 |
40% | -$23.44 | -$5.73 |
41% | -$23.82 | -$5.91 |
42% | -$24.18 | -$6.08 |
43% | -$24.52 | -$6.24 |
44% | -$24.85 | -$6.39 |
45% | -$25.16 | -$6.54 |
46% | -$25.46 | -$6.68 |
47% | -$25.75 | -$6.81 |
48% | -$26.03 | -$6.94 |
49% | -$26.29 | -$7.06 |
50% | -$26.54 | -$7.18 |
51% | -$26.79 | -$7.30 |
52% | -$27.02 | -$7.41 |
53% | -$27.25 | -$7.51 |
54% | -$27.47 | -$7.61 |
55% | -$27.67 | -$7.71 |
56% | -$27.88 | -$7.80 |
57% | -$28.07 | -$7.90 |
58% | -$28.26 | -$7.98 |
59% | -$28.44 | -$8.07 |
60% | -$28.62 | -$8.15 |
61% | -$28.79 | -$8.23 |
62% | -$28.95 | -$8.31 |
63% | -$29.11 | -$8.38 |
64% | -$29.27 | -$8.45 |
65% | -$29.42 | -$8.52 |
66% | -$29.56 | -$8.59 |
67% | -$29.70 | -$8.66 |
68% | -$29.84 | -$8.72 |
69% | -$29.97 | -$8.78 |
70% | -$30.10 | -$8.84 |
71% | -$30.23 | -$8.90 |
72% | -$30.35 | -$8.96 |
73% | -$30.47 | -$9.01 |
74% | -$30.58 | -$9.07 |
75% | -$30.69 | -$9.12 |
76% | -$30.80 | -$9.17 |
77% | -$30.91 | -$9.22 |
78% | -$31.01 | -$9.27 |
79% | -$31.11 | -$9.32 |
80% | -$31.21 | -$9.36 |
81% | -$31.31 | -$9.41 |
82% | -$31.40 | -$9.45 |
83% | -$31.49 | -$9.49 |
84% | -$31.58 | -$9.54 |
85% | -$31.67 | -$9.58 |
86% | -$31.76 | -$9.62 |
87% | -$31.84 | -$9.66 |
88% | -$31.92 | -$9.69 |
89% | -$32.00 | -$9.73 |
90% | -$32.08 | -$9.77 |
91% | -$32.15 | -$9.80 |
92% | -$32.23 | -$9.84 |
93% | -$32.30 | -$9.87 |
94% | -$32.37 | -$9.90 |
95% | -$32.44 | -$9.94 |
96% | -$32.51 | -$9.97 |
97% | -$32.58 | -$10.00 |
98% | -$32.64 | -$10.03 |
99% | -$32.71 | -$10.06 |
100% | -$32.77 | -$10.09 |
Hence, cross over rate is near 11%
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Answer c)
For crossover rate
Step 1: Subtract cash flows of 2 project
Step 2: Find IRR of difference
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