Question: Cummings Products is considering two mutually exclusive investments whose expected Chapter 10 The Basics of Capital Budgeting: Evaluating Cash Flows 445 net cash flows are

Cummings Products is considering two mutually exclusive investments whose expected Chapter 10 The Basics of Capital Budgeting: Evaluating Cash Flows 445 net cash flows are as follows: Year 0 1 2 3 4 5 6 7 EXPECTED NET CASH FLOWS Project A $400 528 219 150 1,100 820 990 325 Project B $650 210 210 210 210 210 210 210 a. Construct NPV profiles for Projects A and B. b. What is each projects IRR? c. If each projects 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 projects MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project Bs life.) e. What is the crossover rate, and what is its significance?

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