Question

11. You are considering the following two mutually exclusive projects. The crossover point is _ should be accepted at a discount rate of 9 percent. percent and Project Year Project A -$ 69,000 13,000 33,000 38,000 Project B -$ 69,000 29,000 24,000 27,000 A) 15.68 percent; B B) 11.38 percent; A C) 11.38 percent; B D) 15.68 percent; A E) 14.02 percent; B.

Answer 1

Difference of CASH flows of Project A and Project B in
year 0=-69000+69000=0
Year 1 =13000-29000=-16000
Year 2 =33000-24000=9000
Year 3 =38000-27000=11000
Cross Over rate using Financial Calculator
CF0=0;CF1=-16000;CF2=9000;CF3=11000;CPT IRR =15.68%

NPV of A at 9% =-69000+13000/1.09+33000/1.09^2+38000/1.09^3 =45.02
NPV of B at 9% =-69000-16000/1.09+9000/1.09^2+11000/1.09^3 =-1345.22
Since NPV of A is higher it should be accepted.

Option d is correct option