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

Practice Problem:

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

1100

210

5

820

210

6

990

210

7

-325

210

  1. Construct the NPV profiles for Project A and B
  2. What is each projects IRR?
  3. If each projects cost of capital were 10%, which project, if either, should be selected?
  4. If the cost of capital were 17%, what would be the proper choice?
  5. What is each projects MIRR at the cost of capital of 10%? At 17%?
  6. What is the crossover rate and what is its significance?

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