Question: Suppose you have two mutually exclusive projects: project L and Project S. Both projects have 3-year lives. Here are the projects net cash flows (in

Suppose you have two mutually exclusive projects: project L and Project S. Both projects have 3-year lives. Here are the projects net cash flows (in thousands of dollars):

0 1 2 3

Project L -100 10 55 95

Project S -100 80 45 15

Depreciation, salvage values, net working capital requirements, and tax effects are all included in these cash flows. Both projects have risk characteristics that are similar to the firms average project. Assume the companys WACC is 7%.

SHOW ALL WORK

A) Calculate each projects NPV and IRR. B) Calculate the crossover rate. C) Which project should be accepted? Explain. D) Name two reasons why NPV profiles cross.

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