Two projects intersect,in terms of NPV,at a discount rate labeled the ________.
A)crossover rate
B)internal rate of return
C)discount rate
D)yield to maturity

Question

Quizplus · Accepted Answer

The crossover rate is the discount rate at which the NPV of two projects intersect or become equal. Therefore, the choice is A. The internal rate of return (B) is the discount rate at which the NPV of a project becomes zero, and it is not specific to the intersection of two projects. The discount rate (C) is the rate used to discount future cash flows to their present value but does not relate to the intersection of two projects. The yield to maturity (D) is the rate of return anticipated on a bond if it is held until the maturity date, and it is not relevant to comparing two projects.

Two Projects Intersect,in Terms of NPV,at a Discount Rate Labeled