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What is the cross-over rate

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Reference no: EM132506139

The following cash flows are given.

Year     A                   B

0     -300,000     -300,000

1      40,000         170,000

2      60,000           90,000

3         90,000       60,000

4        120,000        30,000

5         150,000       40,000

Question a) What is the net present value (NPV) at 12% and internal rate of return (IRR) methods of both projects? Which would you recommend and why?

Question b) What is the cross-over rate? Explain the significance of this rate.

Question c) What two consecutive cash flows in years 4 and 5 of project B would equalize its NPV to the NPV of project B, assuming a 12% rate of return?

Reference no: EM132506139

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