Crossover rate-profitability index


Task1. Consider the following two mutually exclusive projects:

Year            Cash Flow (X)              Cash Flow (Y)
0                 –$19,100                     –$19,100    
1                      8,625                          9,650    
2                      8,650                          7,575    
3                      8,575                          8,475

Question1. Calculate the IRR for each project.

Question2. What is the crossover rate for these two projects?

Question3. What are the NPV of Projects X and Y at discount rates of 0%, 15%, and 25%? (Negative amount should be indicated by a minus sign.

Task2. The Angry Bird Corporation is trying to select between the following two reciprocally exclusive design projects:

Year                   Cash Flow (I)             Cash Flow (II)
0                        –$69,000                    –$17,500    
1                           31,000                         9,450    
2                           31,000                         9,450    
3                           31,000                         9,450    

Question1
. If the needed return is 10 percent, what is the profitability index for the both projects?

Question2. If the company applies the profitability index decision rule, which project must the firm accept?

Question4. What is the NPV for the both projects?

Question5. If the company applies the NPV decision rule, which project must it take?

Solution Preview :

Prepared by a verified Expert
Financial Accounting: Crossover rate-profitability index
Reference No:- TGS03342

Now Priced at $40 (50% Discount)

Recommended (90%)

Rated (4.3/5)

2015 ©TutorsGlobe All rights reserved. TutorsGlobe Rated 4.8/5 based on 34139 reviews.