Question

a
firm must choose between two mutually exclusive projects, a &
b. project a has an initial cost of $10000. its projected net cash
flows are $800, $2000, $3000, $4000, and $5000 at the end of years
1 through 5, respectively. project b has an initial cost of $14000,
and its projected net cash flows are $7000, $5000, $3000, $2000,
and $1000 at the end of years 1 through 5, respectively. at what
cost of capital would the firm be indifferent to the two projects
(i.e. be willing to choose either one)?

3.47%

6.58%

6.82%

7.66%

7.18%

Answer #1

Here actually we need to calculate Cross over rate at which the NPV of both the projects will be same and as a result it will be indifferent.

Correct answer is option b. 6.58%

A firm must choose between two mutually exclusive projects, A
& B. Project A has an initial cost of $11000. Its projected net
cash flows are $900, $2000, $3000, $4000, and $5000 at the end of
years 1 through 5, respectively. Project B has an initial cost of
$15000, and its projected net cash flows are $7000, $5000, $3000,
$2000, and $1000 at the end of years 1 through 5, respectively. At
what cost of capital would the firm be...

A firm must choose between two mutually exclusive projects, A
& B. Project A has an initial cost of $10000. Its projected net
cash flows are $800, $2000, $3000, $4000, and $5000 at the end of
years 1 through 5, respectively. Project B has an initial cost of
$14000, and its projected net cash flows are $7000, $5000, $3000,
$2000, and $1000 at the end of years 1 through 5, respectively. The
firm’s cost of capital is 6.00%. Choose the...

A firm must choose between two mutually exclusive projects, A
& B. Project A has an initial cost of $11000. Its projected net
cash flows are $900, $2000, $3000, $4000, and $5000 at the end of
years 1 through 5, respectively. Project B has an initial cost of
$15000, and its projected net cash flows are $7000, $5000, $3000,
$2000, and $1000 at the end of years 1 through 5, respectively. If
the firm’s cost of capital is 6.00%: Project...

A firm must choose between two mutually exclusive projects, A
& B. Project A has an initial cost of $11000. Its projected net
cash flows are $900, $2000, $3000, $4000, and $5000 at the end of
years 1 through 5, respectively. Project B has an initial cost of
$15000, and its projected net cash flows are $7000, $5000, $3000,
$2000, and $1000 at the end of years 1 through 5, respectively. If
the firm’s cost of capital is 6.00%:
A....

A firm must choose between two mutually exclusive projects, A
& B. Project A has an initial cost of $11000. Its projected net
cash flows are $900, $2000, $3000, $4000, and $5000 at the end of
years 1 through 5, respectively. Project B has an initial cost of
$15000, and its projected net cash flows are $7000, $5000, $3000,
$2000, and $1000 at the end of years 1 through 5, respectively. If
the firm’s cost of capital is 6.00%:
The...

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A
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