Use the following information for Questions 1 through 3:
Assume you are given these mutually exclusive investments with the expected net cash flows as in the table:
Year
Project A
Project B
0
-400
-670
1
-528
210
2
-219
210
3
-250
210
4
1100
210
5
820
210
6
990
210
7
-325
210
Respond to the questions:
Question 1:
What is each project’s IRR?
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?
Question 2:
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.)
Question 3:
What is the crossover rate, and what is its significance?
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