A NPVS) NPVS) NPVS) 800roject A 800 Prject B 800roect B 600 600+ 600 400 400 400 200 200 200 Project A Project B Project A 20 20 25 5 10 15 Cost of capital% S 20 25 -5 5 10 15 25 5 10 15 Cost of capital%) Cost of capital% -200 -2001 -200 400 -400 -400 D NPVS) 800rject A 600 400 200 Project B 5 10 15 Cost of capital % 5 20 25 -200 -400
Cummings Products Company is considering two mutually exclusive investments whose expected net cash flows are as follows:
| EXPECTED NET CASH FLOWS | ||
| Year | Project A | Project B |
| 0 | -$290 | -$400 |
| 1 | -387 | 134 |
| 2 | -193 | 134 |
| 3 | -100 | 134 |
| 4 | 600 | 134 |
| 5 | 600 | 134 |
| 6 | 850 | 134 |
| 7 | -180 | 134 |
- Construct NPV profiles for Projects A and B.
Select the correct graph. (see image)
2. What is each project's IRR? Do not round intermediate calculations. Round your answers to two decimal places.
Project A %
Project B %
3. Calculate the two projects' NPVs, if you were told that each project's cost of capital was 14%. Do not round intermediate calculations. Round your answers to the nearest cent.
Project A $
Project B $
Which project, if either, should be selected?
Calculate the two projects' NPVs, if the cost of capital was 17%. Do not round intermediate calculations. Round your answers to the nearest cent.
Project A $
Project B $
Which project would be the proper choice?
4. What is each project's MIRR at a cost of capital of 14%? (Hint: Consider Period 7 as the end of Project B's life.) Do not round intermediate calculations. Round your answers to two decimal places.
Project A %
Project B %
What is each project's MIRR at a cost of capital of 17%? (Hint: Consider Period 7 as the end of Project B's life.) Do not round intermediate calculations. Round your answer to two decimal places.
Project A %
Project B %
5. What is the crossover rate? Do not round intermediate calculations. Round your answer to two decimal places.
%
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