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Capital Budgeting

Suppose Projects A and B have the Co and C1 after tax net cash flows shown below.

The Net Present Value Profiles for Project's A and B will cross over one another at what approximate discount rate?

Project Co C1
A -500 +700
B -1000 +1300

A) 0 %
B) 10%
C) 16.67%
D) 20%
E) 21.37%
F) No crossover rate exists. The profiles never intersect.
G) The crossover cannot be determined from the information provided

Solution Preview

Please refer attached file for better understanding of formula.

Solution:

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Solution Summary

Solution describes the steps to calculate cross over rate.

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