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Cross over rate can be calculated… Group of answer choices from the total cash flows of...

Cross over rate can be calculated…

Group of answer choices

from the total cash flows of two mutually exclusive projects

for only projects having positive NPVs

for any project that has IRR lower than required rate

for mutually exclusive projects with conflicting ranking in NPV and IRR

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Answer #1

A. from the total cash flows of two mutually exclusive projects.

Cross over rate is the rate at which the NPV of two mutually exclusive projects will be equal.

This rate can be calculated if we have the information regarding their cash outflows and cash inflows.

It is wrong to say that cross over rate can be calculated only for projects having positive NPVs, since it can be calculated for any two mutually exclusive projects whose cash flows are known.

It cannot be said that cross over rate is calculated only for project that has IRR lower than required rate or for mutually exclusive projects with conflict in ranking in NPV and IRR.

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