What is the crossover rate for these two projects?
A) 12.2%
B) 14.0%
C) 15.4%
D) 18.3%
E) 19.1%

Question

Quizplus · Accepted Answer

The crossover rate is the point where the NPVs of two projects intersect. To find the crossover rate, we need to set the NPVs of the two projects equal to each other and solve for the rate. This gives us:
-150 + 300/(1+r) = -100 + 240/(1+r)
Solving for r, we get r = 0.154 or 15.4%. Therefore, at a discount rate of 15.4%, the two projects have the same NPV and are equally desirable. Therefore, the best choice would be to select the project that has a higher NPV at the company's required rate of return.

What Is the Crossover Rate for These Two Projects