Assume the projects are mutually exclusive, that they have equal lives and equal

Question

Assume the projects are mutually exclusive, that they have equal lives and equal risk, and that the firm does not face financial (or other) constraints. Assume also that the appropriate cost of capital is 10%.
A B
IRR 18% 27%
NPV @ 10% $1,665 $1,601

Payback 7 years 4 years

Profitability Index 1.67 2.00

Based on the information in the table, we can reasonably infer that the cross-over rate is
a. Greater than 27%.
b. Greater than 18%, but less than or equal to 27%
c. Greater than 10%, but less than or equal to 18%
d. Less than 10%

We can also reasonably infer that project A’s large cash inflows come _______________ in the project’s life than (as) project B’s large cash inflows.
a. Later
b. Earlier
c. At the same time
d. No inference can be drawn about the timing of either project’s cash inflows

Explanation / Answer

Based on the information in the table, we can reasonably infer that the cross-over rate is
a. Greater than 27%.
b. Greater than 18%, but less than or equal to 27%
c. Greater than 10%, but less than or equal to 18%
d. Less than 10%

We can also reasonably infer that project A’s large cash inflows come _______________ in the project’s life than (as) project B’s large cash inflows.
a. Later
b. Earlier
c. At the same time
d. No inference can be drawn about the timing of either project’s cash inflows

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.