Suppose that there are two projects available to a corporation; the cash flows are given in the following table:
Year Project A Project B
0 -$20,000 -$40,000
1 $3,000 $10,000
2 $4,000 $8,000
3 $5,000 $7,000
4 $6,000 $12,000
5 $7,000 $9,000
a) What is the cross-over rate between the two projects?
b) Determine the cost of capital at which the NPV of project A is zero.
c) Determine the cost of capital at which the NPV of project B is zero.