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Capital budgeting decision rule

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Reliant Inc. is considering Projects A and B with the cash flows shown below. The firm's WACC is 10%. There have been discussions within the company about which capital budgeting decision rule should be used to determine the better project. A staff person has suggested that the crossover rate should be calculated so the firm has more information. What is the crossover rate for these two projects? In other words, at what discount rate are the NPVs of these two projects equal?

                       0               1               2               3               4               5    
Project A     -$1,250       $590         $325         $285         $145         $135
Project B     -$1,825       $250         $200         $690         $680         $500

a.  5.88%
b.  6.91%
c.  7.38%
d.  7.99%
e.  8.66%

Reference no: EM132743711

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