A company is considering two mutually exclusive projects Adept and Boffo.Project Adept requires an initial investment of $100,000 and is expected to generate after-tax cash flows of $45,000 per year for three years.Project Boffo requires an initial investment of $150,000 and is expected to generate after-tax cash flows of $50,000 per year for four years.The appropriate discount rate is 10 percent.What is the crossover rate for projects Adept and Boffo?

Question

Quizplus · Accepted Answer

Crossover rate (CR)= IRR of the incremental project (Boffo - Adept)
CFs of project (Boffo - Adept): -$50,000,$5,000,$5,000,$5,000,and $50,000
Using a financial calculator (TI BA II Plus):
[CF][2nd][CLR WORK]
CF0=-50,000,C01=5,000,F01=3,C02=50,000,F02=1.IRR.CPT.
CR = 7.77%

A Company Is Considering Two Mutually Exclusive Projects Adept and Boffo.Project