Considering two mutually exclusive investments

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Reference no: EM131099596

Kirksville Company is considering two mutually exclusive investments. The projects' expected net cash flows are as follows: Year Expected Net Cash Flows Project A Project B 0 -$1,300 -$405 1 $300 $100 2 $200 $100 3 $100 $100 4 $600 $100 5 $600 $100 Assume the required rate of return is 10%.

(1) Assuming that the projected future net cash flows for each project (from year 1 through 7) are net income, find the AAR? If you use the AAR method for capital budgeting analysis, which project would you choose? The target AAR is 10%. Explain.

(2) Find the crossover rate. You are absolutely required to provide the equation. (3) Sketch the NPV profile for both projects. At least 5 points should be plotted.

Reference no: EM131099596

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