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problem: 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?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M917934

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