Purchase Solution

# Identifying the crossover rate in the given case

Not what you're looking for?

Using the table identify the "crossover point" AND briefly describe the significance when the crossover rate is greater than the cost of capital for mutually exclusive projects. Why is the IRR method less reliable when evaluating mutually exclusive projects?

Discount Rate(%) NPV of Project A NPV of Project B
0 100.00 280.00
5.00 77.30 202.81
10.00 58.49 138.88
15.00 42.75 85.35
20.00 29.44 40.08
21.86 25.00 25.00
25.00 18.08 1.47
25.21 17.65 0.00
30.00 8.31 -31.74
34.90 0.00 -60.00
35.00 -0.15 -60.52

##### Solution Summary

The solution identifies the crossover point in the given case.

##### Solution Preview

Cross over point is the return/discount rate where NPV profiles of two projects intersect i.e. both projects have the same NPV. In the above case, NPV is 25 for both projects at 21.86%. Cross over point is 21.86% in the given case.

By knowing the crossover rate, when analyzing mutually exclusive projects, we can identify the discount ...

Solution provided by:
###### Education
• BEng (Hons) , Birla Institute of Technology and Science, India
• MSc (Hons) , Birla Institute of Technology and Science, India
###### Recent Feedback
• "Thank you"
• "Really great step by step solution"
• "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
• "Thanks Again! This is totally a great service!"
• "Thank you so much for your help!"

##### Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.

##### Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

##### Motivation

This tests some key elements of major motivation theories.