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    NPV and IRR Analysis

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    Derek's Donuts is considering two mutually exclusive investments. The projects expected net cash flows are as follows:

    Year Project A Project B
    0 ($300) ($405)
    1 ($387) $134
    2 ($193) $134
    3 ($100) $134
    4 $500 $134
    5 $500 $134
    6 $850 $134
    7 $100 $0

    *** SEE ATTACHED EXCEL SPREADSHEET FOR THE DATA ***

    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 required rate of return was 12percent, which project should be selected? If the required rate of return was 15%, what would be the proper choice?

    D) Looking at the NPV profiles constructed in part (a), what is the approximate crossover rate, and what is its significance?

    © BrainMass Inc. brainmass.com June 3, 2020, 7:57 pm ad1c9bdddf
    https://brainmass.com/business/capital-budgeting/npv-and-irr-analysis-118551

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    Solution Summary

    The solution compares two mutually exclusive investments by
    1) Constructing NPV profiles for the projects
    2) Computing IRR of the projects
    and
    3) Recommends which project should be selected
    4) Finds the crossover rate

    $2.19

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