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Projects A and B are mutually exclusive and have an initial cost of $78,000 each. Project A has annual cash flows for Years 1 to 3 of $28,300, $31,500, and $22,300, respectively. Project B has annual cash flows for Year 1 of $36,900 and $40,500 for Year 2. What is the crossover rate

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abiolataiwo2015

Answer:

16.99%

Explanation:

Calculation for the crossover rate

We are going to to calculate the crossover rate using cash flow function on a financial calculator by following the step below:

CF0= 0

Step 1

C01=Project A year 1 -Project B year 1

C01=$28,300-$36,900

C01= -$8,600

Step 2

C02=Project A year 2 -Project B year 2

C02=$31,500-$40,500

C02= -$9,000

Third step

C03=Project A year 3

C03=$22,300

Last step

Press CPT key in order for IRR(INTERNAL RATE OF RETURN) to be display

Hence:

Crossover rate=16.99%

Therefore the Crossover rate will be 16.99%

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