Computation of net present values

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Reference no: EM1312807

Computation of Net Present Values and Internal Rate of Returns and Cross Over rates to select among mutually exclusive projects based on cash flows and discounting rates

Derek's Donuts is considering two mutually exclusive investments. The projects' expected net cash flows are as follows:

Expected Net Cash Flows

Year	Project A	Project B
0	$(300)	$(405)
1	(387)	134
2	(193)	134
3	(100)	134
4	500	134
5	500	134
6	850	134
7	100	0

a. Construct NPV profiles for Projects A and B.

b. What is each project's IRR?

c. If you were told that cash project's required rate of return was 12 percent, which project should be selected? If the required rate of return was 15 percent, what would be the proper choice?

d. Looking at the NPV profiles constructed in part (a), what is the approximate crossover rate, and what is its significance?

Reference no: EM1312807

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