Question: Cummings Products is considering two mutually exclusive investments whose expected net cash flows are as follows: Expected Net Cash Flows Year Project A Project B

Cummings Products is considering two mutually exclusive investments whose expected net cash flows are as follows:

Expected Net Cash Flows

Year Project A Project B

0 -400 -650

1 -528 210

2 -219 210

3 -150 210

4 1,100 210

5 820 210

6 990 210

7 -325 210

a. Construct NPV profiles for Projects A and B

b. What is each project's IRR?

c. If each project's cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice?

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

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