Compute NPV and IRR if the required return is 12 percent.

Year CashFlow

0 -8,000

1 0

2 5,500

3 3,200

2.What is the "cross-over" rate of the following projects?

Year Project A Project B

0 -1,400 -800

1 950 600

2 950 600

3.

Sketch the NPV profile of the following project and show the multiple IRRs. Note that the project has two IRRs and the first one is at 25 percent.

Year CashFlow

0 -60

1 155

2 -100

4.

The Toroco Co. is considering two mutually exclusive pieces of machinery that perform the same task.

Year Equipment A Equipment B

0 ($10,000) ($10,000)

1-2 5,800

1-3 4,050

NPV at 8% 342 437

a. Determine which model should be purchased using the Replacement Chain (RC) method.

b. Calculate the equivalent annual annuity (EAA) for each model