Consider the following two mutually exclusive projects Year Cash Flow (X) - 20,0
ID: 2784360 • Letter: C
Question
Consider the following two mutually exclusive projects Year Cash Flow (X) - 20,000 - 20,000 Cash Flow (Y) 8,850 9,100 8,800 10,100 7,800 8,700 2 Calculate the IRR for each project. (Round your answers to 2 decimal places. (e.g., 32.16)) IRR Project X Project Y 16.09 % What is the crossover rate for these two projects? (Round your answer to 2 decimal places. (e.g., 32.16)) 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. Round your answers to 2 decimal places. (e.g., 32.16)) Discount rate 0% 15% 25% Project X Project Y 6750 Hints References eBook & ResourcesExplanation / Answer
NPV@15% NPV@20% Year Project X PV factor PV Project A PV factor PV Project A 0 (20,000) 1.000 (20,000) 1.000 (20,000) 1 8,850 0.870 7,696 0.833 7,375 2 9,100 0.756 6,881 0.694 6,319 3 8,800 0.658 5,786 0.579 5,093 NPV 363 (1,213) IRR =Lower rate + Difference in rates*(NPV at lower rate)/(Lower rate NPV-Higher rate NPV) IRR =15%+5%*(363/(363+1213)) 16.15% NPV@15% NPV@20% Year Project Y PV factor PV Project A PV factor PV Project A 0 (20,000) 1.000 (20,000) 1.000 (20,000) 1 10,100 0.870 8,783 0.833 8,417 2 7,800 0.756 5,898 0.694 5,417 3 8,700 0.658 5,720 0.579 5,035 NPV 401 (1,132) IRR =Lower rate + Difference in rates*(NPV at lower rate)/(Lower rate NPV-Higher rate NPV) IRR =15%+5%*(401/(401+1132)) 16.31% Calculation of Cross over rate NPV@10% NPV@15% Year Difference of cash flow PV factor PV Project A PV factor PV Project A 0 - 1.000 - 1.000 - 1 (1,250) 0.909 (1,136) 0.870 (1,087) 2 1,300 0.826 1,074 0.756 983 3 100 0.751 75 0.658 66 NPV 13 (38) Crossover rate =Lower rate + Difference in rates*(NPV at lower rate)/(Lower rate NPV-Higher rate NPV) Crossover rate =10%+5%*(13/(13+38)) 11.27% Year Project X PV factor @ 0% PV factor @ 15% PV factor @ 25% PV @ 0% PV @ 15% PV @ 25% 0 (20,000) 1.000 1.000 1.000 (20,000) (20,000) (20,000) 1 8,850 1.000 0.870 0.800 8,850 7,696 7,080 2 9,100 1.000 0.756 0.640 9,100 6,881 5,824 3 8,800 1.000 0.658 0.512 8,800 5,786 4,506 Net Present Value 6,750 363 (2,590) Year Project Y PV factor @ 0% PV factor @ 15% PV factor @ 25% PV @ 0% PV @ 15% PV @ 25% 0 (20,000) 1.000 1.000 1.000 (20,000) (20,000) (20,000) 1 10,100 1.000 0.870 0.800 10,100 8,783 8,080 2 7,800 1.000 0.756 0.640 7,800 5,898 4,992 3 8,700 1.000 0.658 0.512 8,700 5,720 4,454 Net Present Value 6,600 401 (2,474)