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Consider two mutually exclusive projects. The crossover rate for the two projects is 12%, at which point both have an NPV of $5,000. At a discount rate of 10%, Project 1 has a higher NPV than Project 2.

a. If the appropriate discount rate is actually 15% (not 10%), which project is better? Explain your answer.

b. Draw a rough sketch of NPVs and the crossover point to illustrate your answer. Use the following additional information as needed: Project 1’s IRR is 15%. Project 2’s IRR is 22%. Label the information provided on your graph.

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Nelly Stracke
Nelly StrackeLv2
29 Sep 2019

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Consider two mutually exclusive projects. The crossover rate for the two projects is 12%, at which point both have an NPV of 5,000. At a discount rate of 10%, project 1 has a higher NPV than Project 2. A) If the appropriate discount rate is actually 15% (not 10%) which project is better? explain your answer B)Draw a rough sketch of NPVs and the crossover point to illustrate your answer. Use the following additional information as needed: Project 1's IRR is 15%. Project 2's IRR is 22% Label the information provided on your graph.

Consider the following two mutually exclusive projects:

Can't figure out the crossover rate

Year Cash Flow
(X)		 Cash Flow
(Y)
0 –$ 19,400 –$ 19,400
1 8,700 9,800
2 8,800 7,650
3 8,650 8,550

Calculate the IRR for each project. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

IRR
Project X %
Project Y %

What is the crossover rate for these two projects? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Crossover rate %
What is the NPV of Projects X and Y at discount rates of 0%, 15%, and 25%? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Discount rate Project X Project Y
0% $ $
15% $ $
25% $ $

Question text Johnson Mirrors is facing the possibility of two mutually exclusive projects. They have determined that the required rate for similar projects is 11.7 percent. Project A has an internal rate of return (IRR) of 15.3 percent and Project B has an IRR of 16.5 percent. Given this information, which one of the following statements is correct? Select one:

a. Project A should be accepted as its IRR is closer to the crossover point than is Project B's IRR.

b. Project B should be accepted as it has the higher IRR.

c. Both projects should be accepted as both of the project's IRRs exceed the crossover rate.

d. Neither project should be accepted since both of the project's IRRs exceed the crossover rate.

e. You cannot determine which project should be accepted given the information provided.

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