Cummings Products Company is considering two mutually exclusive investments. The projects' expected net cash flows are as

Question:

Cummings Products Company is considering two mutually exclusive investments. The projects' expected net cash flows are as follows:

a. Construct NPV profiles for Projects A and B.

b. What is each project's IRR?

c. If you were told that each project's cost of capital was 10 percent, which project should be selected? If the cost of capital was 17 percent, what would be the proper choice?

d. What is each project's MIRR at a cost of capital of 10 percent at 17%?

(Hint: Consider Period 7 as the end of Project B's life.)

e. What is the crossover rate, and what is its significance?

EXPECTED NET CASH FLOWS Project A Year Project B ($300) ($405) (387) 134 134 (193) (100) 134 600 134 600 134 850 134 (18

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...