Cummings Products is considering two mutually exclusive investments whose expected net cash flows are as follows: expected Net Cash Flows Year Project A Project B 0 ($400) ($650) 1 -528 210 2 -219 210 3 -150 210 4 1100 210 5 820 210 6 990 210 7 -325 210 a. Construct NPV profiles for Projects A and B. b. What is each project’s IRR? c. If each project’s cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice?d. What is each project’s MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B’s life.)e. What is the crossover rate, and what is its significance?
Cummings Products is considering two mutually exclusive investments whose expected net cash flows are as follows: expected Net Cash Flows Year Project A Project B 0 ($400) ($650) 1 -528 210 2 -219 210 3 -150 210 4 1100 210 5 820 210 6 990 210 7 -325 210 a. Construct NPV profiles for Projects A and B. b. What is each project’s IRR? c. If each project’s cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice?d. What is each project’s MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B’s life.)e. What is the crossover rate, and what is its significance?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 13P
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Cummings Products is considering two mutually exclusive investments whose expected net cash flows are as follows:
expected Net Cash Flows
Year | Project A | Project B |
0 | ($400) | ($650) |
1 | -528 | 210 |
2 | -219 | 210 |
3 | -150 | 210 |
4 | 1100 | 210 |
5 | 820 | 210 |
6 | 990 | 210 |
7 | -325 | 210 |
a. Construct NPV profiles for Projects A and B. b. What is each project’s
c. If each project’s cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice?
d. What is each project’s MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B’s life.)
e. What is the crossover rate, and what is its significance?
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