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What is the crossover rate

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Your division is considering 2 investment projects, each of which requires an upfront expenditure of $25 million. You estimate that the cost of capital is 10% and that investments will produce the following after-tax cash flows (in million dollars):

Year        Project A         Project B

1              5                20

2           10                  10

3           15                    8

4            20                 6

Problem a. What is the regular payback period for each of the projects?

Problem b. What is the discounted payback for each of the projects?

Problem c. If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake?

Problem d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake?

Problem e. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake?

Problem f. What is the crossover rate?

Problem g. If the cost of capital is 10%, what is the modified IRR (MIRR) of each project?

Reference no: EM132811214

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