NPV and IRR AnalysisCummings Products Company is considering two mutually exclusive investments whose expected net cash flows are as follows:EXPECTED NET CASH FLOWSYearProject AProject B-$340-$630-528210-2192103.-1502104.1,1002108202106.9902107.-325210a. Construct NPV profiles for Projects A and B.Select the correct graph.VPVS)1400VPVS)VPVS)14001400120012001200+100010001000800Project B800Pioject A800+C1 Project B:%c. Calculate the two projects' NPVS, if each project's cost of capital was 11%. Do not round intermediate calculations. Round your answers to the nearest cent.Project A: $Project B: $Which project, if either, should be selected?-Select-v should be selected.Calculate the two projects' NPVS, if each project's cost of dapital was 18%. Do not round intermediate calculations. Round your answers to the nearest cent.Project A: $Project B: $What would be the proper choice?Select-v is the proper choice.d. What is each project's MIRR at a cost of capital of 11%? (Hìnt: Consider Period 7 as the end of Project B's life.) Do not round intermediate calculations. Round youranswers to two decimal places.Project A:%Project B:%What is each project's MIRR at a cost of capital of 18%? (Hint: Consider Period 7 as the end of Project B's life.) Do not round intermediate calculations. Round youranswers to two decimal places.Project A:%Project B:%e. What is the crossover rate? Do not round intermediate calculations. Round your answer to two decimal places.%What is its significance?I. If the cost of capital is greater than the crossover rate, both the NPV and IRR methods will lead to the same project selection.II. If the cost of capital is less than the crossover rate, both the NPV and IRR methods lead to the same project selections.III. The crossover rate has no significance in capital budgeting analysis.-Select- v

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NPV and IRR Analysis Cummings Products Company is considering two mutually exelusive investments whose expected net cash flows are as follows: EXPECTED NET CASH FLOWS Year Project A Project B 0. -$340 -$630 1 -528 210 2. -219 210 3. -150 210 4. 1,100 210 5. 820 210 990 210 -325 210 a. Construct NPV profiles for Projects A and B. Select the correct graph. VPV5)T 1400- VPVS) I VPVS) 1400 1400 1200 1200 1200 1000 1000 1000 800 Project B 800 Pioject A 800

NPV and IRR Analysis Cummings Products Company is considering two mutually exelusive investments whose expected net cash flows are as follows: EXPECTED NET CASH FLOWS Year Project A Project B 0. -$340 -$630 1 -528 210 2. -219 210 3. -150 210 4. 1,100 210 5. 820 210 990 210 -325 210 a. Construct NPV profiles for Projects A and B. Select the correct graph. VPV5)T 1400- VPVS) I VPVS) 1400 1400 1200 1200 1200 1000 1000 1000 800 Project B 800 Pioject A 800

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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Define each of the following terms: Capital budgeting; payback period; discounted payback period Independent projects; mutually exclusive projects Net present value (NPV) method; internal rate of return (IRR) method; profitability index (PI) Modified internal rate of return (MIRR) method NPV profile; crossover rate Nonnormal cash flow projects; normal cash flow projects; multiple IRRs Reinvestment rate assumption Replacement chain; economic life; capital rationing; equivalent annual annuity (EAA)
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