The following two mutually-exclusive business opportunities are currently under consideration by your firm, The Sharper Investor. The accounting department has forecasted pro forma cash flows for both projects according to the following table: (each project is to be funded to require a discount rate of 15%)
Year Cash Flow (A) Cash Flow (B) _
0 -$525,000 -$60,000
1 30,000 30,000
2 75,000 15,000
3 75,000 9,000
4 1,125,000 3,000
1. Discounted payback of Project A (above) equals:
a. 3.61 years b. 3.31 years c. 4.0 years d. 3.47 years
2. What is Project A's Internal Rate of Return (SHOW ALL WORK)?
a. 28.37% b. 27.49% c. 27.94% d. 29.13% e. 26.99%
3. The Profitability Index for Project B equals?
a. -$14,938 b. .9500 c. 1.3316 d. .7510 e. .8854
What is the crossover rate between projects A and B? (place answer here:____________ SHOW WORK on scratch sheet)