Cummings Products is considering two mutually exclusive investments whose expected net cash flows are as follows: Construct NPV profiles for Projects A and B. 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? 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.)
Cummings Products is considering two mutually exclusive investments whose expected net cash flows are as follows: Construct NPV profiles for Projects A and B. 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? 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.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Cummings Products is considering two mutually exclusive investments whose expected net cash flows are as follows:
- Construct
NPV profiles for Projects A and B. - 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?
- 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.)
- What is the crossover rate, and what is its significance?
Transcribed Image Text:Year
0
1
2
3
4
5
490
6
7
Expected Net Cash Flows
Project A
Project B
-$400
-528
-219
-150
1,100
820
990
-325
- $650
210
210
210
210
210
210
210
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