Consider two mutually exclusive projects, A and B, whose costs and cash flows are shown in the following table:
Cost of capital = 12%
Year Project A Project B
1 $(15,000) $(22,840)
2 9,000 8,000
3 8,000 8,000
4 2,500 8,000
5 3,000 8,000
a. Calculate the cross over rate. Show your work and use Excel to find your answer.
b. Compute NPV, IRR, and DPB for both projects. Show your work and use Excel to find your answer.
c. Which project will be accepted. Why?