Question 4

Your division is considering two investment projects, each of which requires an up-front expenditure of $28 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars):

Year	Project A	Project B
1	5	20
2	10	10
3	15	8
4	20	6

a. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake?

b. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake?

c. What is the crossover rate? Round your answer to two decimal places.