Assume you are given these mutually exclusive investments with the expected net cash flows as in the table:
| Year | Project A | Project B |
| 0 | -400 | -670 |
| 1 | -528 | 210 |
| 2 | -219 | 210 |
| 3 | -250 | 210 |
| 4 | 1100 | 210 |
| 5 | 820 | 210 |
| 6 | 990 | 210 |
| 7 | -325 | 210 |
Respond to the questions:
Question 1:
- What is each project’s IRR?
- If each project’s cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice?
Question 2:
What is each project’s MIRR at the cost of capital of 10%? At 17%?
(Hint: Consider Period 7 as the end of Project B’s life.)
Question 3:
What is the crossover rate, and what is its significance?