Question: Derek's Donuts is considering 2 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
|
500
|
134
|
|
5
|
500
|
134
|
|
6
|
850
|
134
|
|
7
|
100
|
0
|
[A] Make NPV profiles for Projects A & B.
[B] Determine each project's IRR?
[C] If you were told that cash project's required rate of return was 12%, 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, & determines its significance?