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    Cummings Products Co: NPV and IRR analysis for Project A and

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    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) ($405)
    1 (387) 134
    2 (193) 134
    3 (100) 134
    4 600 134
    5 600 134
    6 850 134
    7 (180) 0

    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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    Solution Summary

    This solution is comprised of a detailed explanation to construct NPV profiles for Projects A and B.

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