(11-DE) D.What is each project\'s MIRR at a cost of capital of 17%? ( Hint: Note

Question

(11-DE)

D.What is each project's MIRR at a cost of capital of 17%? (Hint: Note that B is a 6-year project.) Round your answer to two decimal places.

Project A %

Project B %

E.What is the crossover rate? Round your answer to two decimal places.
What is its significance? Select one below

I.If the cost of capital is less than the crossover rate, both the NPV and IRR methods lead to the same project selections.
II.The crossover rate has no significance in capital budgeting analysis.
III.If the cost of capital is greater than the crossover rate, both the NPV and IRR methods will lead to the same project selection.

EXPECTED NET CASH FLOWS Year Project A Project B 0 -$300 -$405 1 -387 134 2 -193 134 3 -100 134 4 600 134 5 600 134 6 850 134 7 -180 134

Explanation / Answer

What is each project's MIRR at a cost of capital of 17%? (Hint: Note that B is a 6-year project.) Round your answer to two decimal places

Project A

MIRR = mirr({-300,-387,-193,-100,600,600,850,-180},17%,17%)

MIRR = 17.57%

Project B

MIRR = mirr({-405,134,134,134,134,134,134,134},17%,17%)

MIRR = 21.44%

Project A 17.57%

Project B 21.44%

Note : As expected cash flow is given in problem is 7 year which means it is 7 year project but in hint it is mention it is 6 year project in Project B

if it would be 6 year project B

Project B

MIRR = mirr({-405,134,134,134,134,134,134},17%,17%)

MIRR = 20.40%

E.What is the crossover rate? Round your answer to two decimal places.

Crossover rate = irr({105,-521,-327,-234,466,466,716,-314})

Crossover rate = 11.69%

Working

What is its significance?

I.If the cost of capital is less than the crossover rate, both the NPV and IRR methods lead to the same project selections.

Year Project A Project B Differential [a] [b] [a-b] 0 -300 -405 105 1 -387 134 -521 2 -193 134 -327 3 -100 134 -234 4 600 134 466 5 600 134 466 6 850 134 716 7 -180 134 -314

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