Consider two mutually exclusive projects:
Project A initially cost $50,000 and will generate cash flows of $10,000 for six years
Project B initially cost $100,000 and will generate cash flows of $10,000 for three years and then $85,000 in year four.
1. What is the crossover rate?
2. What projectwould you choose if discount rate is 2% ?
3. What projectwould you choose if discount rate is 4% ?
4. What projectwould you choose if discount rate is 8% ?