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Evaluating Cash Flows

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ZumBahlen Inc. is considering the following mutually exclusive projects:

Year Project A
Cash Flow Project B
Cash Flow
0 -$5,000 -$5,000
1 200 3,000
2 800 3,000
3 3,000 800
4 5,000 200

At what cost of capital will the net present value of the two projects be the same? (That is, what is the "crossover" rate?)

A. 15.68%
B. 16.15%
C. 16.74%
D. 17.33%
E. 17.80%

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Solution Summary

The expert examines evaluating cash flows.

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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