You are comparing two mutually exclusive projects.The crossover point is 12.3 percent.You have determined that you should accept project A if the required return is 13.1 percent.This implies you should:
A) always accept project A.
B) be indifferent to the projects at any discount rate above 13.1 percent.
C) always accept project A if the required return exceeds the crossover rate.
D) accept project B only when the required return is equal to the crossover rate.
E) accept project B if the required return is less than 13.1 percent.

Question

Quizplus · Accepted Answer

EThe crossover point is the discount rate at which the net present values (NPVs) of two projects are equal. If you should accept project A at a required return of 13.1 percent, which is above the crossover rate of 12.3 percent, it implies that project A has a higher NPV at discount rates above the crossover point. Therefore, you should always accept project A if the required return exceeds the crossover rate (C). Additionally, since project B would be preferable at discount rates below the crossover point, you should accept project B if the required return is less than 13.1 percent (E), as it implies the required return is also below the crossover rate where project B's NPV would be higher.

You Are Comparing Two Mutually Exclusive Projects