Swenson's is considering two mutually exclusive projects, Projects A and B, and has determined that the crossover rate for these projects is 11.7 percent. Given this you know that:
A) neither project will be accepted if the discount rate is less than 11.7 percent.
B) both projects have a negative NPV at discount rates greater than 11.7 percent.
C) both projects provide an internal rate of return of 11.7 percent.
D) both projects have a zero NPV at a discount rate of 11.7 percent.
E) the project that is acceptable at a discount rate of 11 percent should be rejected at a discount rate of 12 percent.

Question

Swenson's is considering two mutually exclusive projects, Projects A and B, and has determined that the crossover rate for these projects is 11.7 percent. Given this you know that: 
A) neither project will be accepted if the discount rate is less than 11.7 percent. 
B) both projects have a negative NPV at discount rates greater than 11.7 percent. 
C) both projects provide an internal rate of return of 11.7 percent. 
D) both projects have a zero NPV at a discount rate of 11.7 percent. 
E) the project that is acceptable at a discount rate of 11 percent should be rejected at a discount rate of 12 percent.

Quizplus · Accepted Answer

The crossover rate is the discount rate at which the NPVs of two projects are equal. If the discount rate is below the crossover rate, one project may be preferred, but if it is above, the other project may be preferred. Thus, a project acceptable at 11% may not be acceptable at 12%.

Swenson's Is Considering Two Mutually Exclusive Projects, Projects a and B