Question

Crenshaw Enterprises has gathered projected cash flows for two projects. Year Project -$262,000 0 نہ بنا د 113,800 105,400 89.400 78,400 Project $262,000 92,200 100,200 102,200 109,200 a. At what interest rate would the company be indifferent between the two projects? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. Which project is better if the required return is above this interest rate? a. Interest rate

Answer 1

E В C D Difference in cash flows Project I Cash flows Cash flows -$262,000 $262, 000 Project J 2 3 year $0 4 0 $113,800 $92,200 $21,600 $5,200 -$12,800 5 $105,400 $89,400 $100,200 $102,200 $109,200 6 2 7 $78,400 -$30,800 8 4 21.43% 9 Crossover rate IRR(D4:D8,) 10 11 a. Interest rate= 21.43% 12 13 Above the crossover point accept the projectI 14 so at discount rate above crossover rate accept project 15 00