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8. The (net) cash flows of project C and D are shown below: Net Cash Flow...

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8. The (net) cash flows of project C and D are shown below: NetCash Flow ($) Year Project C Project D 0 -2,000 -1,000 1 3,000 6502 125 1,500 a. Find the crossover rates. (1.5 point) b. The cost ofcapital is 12 percent. If C and D are mutually exclusive, whichproject should be accepted? Why? (0.5 point)

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Answer a
Calculation of crossover rate
The crossover rate is the point at which the two projects achieve the same net present value.
Year Project C Cash flow Project D Cash flow Diiference
a b c b-c
0 -$2,000.00 -$1,000.00 -$1,000.00
1 $3,000.00 $650.00 $2,350.00
2 $125.00 $1,500.00 -$1,375.00
Aply IRR formula to the difference to get crossover rate.
Crossover rate = 10.00%
Answer b
Calculation of NPV of projects
Year Discount factor @ 12% Project C Project D
Cash flow Present Value Cash flow Present Value
0 1 -$2,000.00 -$2,000.00 -$1,000.00 -$1,000.00
1 0.892857143 $3,000.00 $2,678.57 $650.00 $580.36
2 0.797193878 $125.00 $99.65 $1,500.00 $1,195.79
NPV of projects $778.22 $776.15
NPV of project C is higher , hence Project C should be accepted.

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8. The (net) cash flows of project C and D are shown below: NetCash Flow ($) Year Project C Project D 0 -2,000 -1,000 1 3,000 6502 125 1,500 a. Find the crossover rates. (1.5 point) b. The cost ofcapital is 12 percent. If C and D are mutually exclusive, whichproject should be accepted? Why? (0.5 point)

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