Seether, Inc., has the following two mutually exclusive projects available. What
ID: 2709204 • Letter: S
Question
Seether, Inc., has the following two mutually exclusive projects available.
What is the crossover rate for these two projects? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
What is the NPV of each project at the crossover rate? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
Year Project R Project S 0 –$ 55,000 –$ 76,000 1 21,000 20,000 2 22,000 20,000 3 19,000 35,000 4 12,000 30,000 5 9,000 10,000 Requirement 1:What is the crossover rate for these two projects? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
Internal rate of return % Requirement 2:What is the NPV of each project at the crossover rate? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
NPV Project R $ Project S $Explanation / Answer
Answer
Requirement -1 : Crossover Rate of two projects is the rate of return where the NPV of two projects becomes equal.
NPVR = NPVS
-55000 + 21000/ (1+r) +22000/ (1+r)2 + 19000/ (1+r)3 + 12000/ (1+r)4 + 9000/ (1+r)5 = -76000 + 20000/ (1+r) +20000/ (1+r)2 + 35000/ (1+r)3 + 30000/ (1+r)4 + 10000/ (1+r)5
21000 + 1000/ (1+r) +2000/ (1+r)2 - 16000/ (1+r)3 - 18000/ (1+r)4 - 1000/ (1+r)5 = 0
r= Cross over Rate = 11.87 %
IRRR = 18.26 %
IRRS = 15.92 %
Requirement -2 :
PV at interest rate of 11.87%
NPVR = NPVS ( At Cross Over Rate) = $ 7720