Financial Management: P11-13 Cummings Products Company is considering two mutually exclusive

Financial Management

P11-13
Cummings Products Company is considering two mutually exclusive investments. The projects’ expected net cash flows are as follows:
Expected Net Cash Flows
Year Project A Project B
0 (300.00) (405.00)
1 (387.00) 134.00
2 (193.00) 134.00
3 (100.00) 134.00
4 600.00 134.00
5 600.00 134.00
6 850.00 134.00
7 (180.00) -

a. Construct NPV profiles for Projects A and B.
b. What is each project’s IRR?
c. If you were told that each project’s cost of capital was 10%, which project should be selected? If the cost of capital was 17%, what would be the proper choice?
d. What is each project’s MIRR at a cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B’s life.)
e. What is the crossover rate, and what is its significance?
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