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rv Prome anu CIUSSUVer Rale 600 500 Project One -Project Two 400 300 Crossover Rate = 8.56% 200 100 0 5% 10% 15% 20% 25% 3 0%

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The correct answer is "C" : There is no way of telling from the graph where the cash flows take place.

This is a crossover graph which basically shows that both Project A and Project B will have equal NPV at the crossover rate of 8.33%.

X axis represents the discount rate and Y axis represents the NPV of the projects. Whether cash flows occur at an earlier period or a later period is not ascertainable from the graph. The graph only shows the cost of capital at which both projects have equal NPV. Hence if the company's cost of capital crosses the crossover rate, the relative attractiveness of projects changes i.e. if Project A is preferable at a discount rate below the crossover rate, Project B becomes more attractive as soon as the cost of capital crosses the crossover rate.

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