A3 3f 3. We have two mutually exclusive investments with the following cash flows: Year Investment A Investment B 0 –$100 –$100 1 10 50 2 30 40 3 50 30 4 70 20 f. Calculate the crossover rate at which we are indifferent between the two investments.

A3 3f 3. We have two mutually exclusive investments with the following cash flows: Year Investment A Investment B 0 –$100 –$100 1 10 50 2 30 40 3 50 30 4 70 20 f. Calculate the crossover rate at which we are indifferent between the two investments.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.12: Uneven, Or Irregular, Cash Flows

Problem 3ST

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

A3 3f

3. We have two mutually exclusive investments with the following cash flows:

Year	Investment A	Investment B
0	–$100	–$100
1	10	50
2	30	40
3	50	30
4	70	20

f. Calculate the crossover rate at which we are indifferent between the two investments.

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