(10) Points The Big Company is considering two pieces of machinery that perform the same...
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(10) Points The Big Company is considering two pieces of machinery that perform the same repetitive task. The two alternatives available provide the following set of after-tax net cash flows. Assuming a required rate of return of 10%:
Year
Project A
Project B
0
(40,000)
(75,000)
1
20000
22000
2
20000
22000
3
20000
22000
4
22000
5
22000
6
22000
For the above projects find the cross-over point, i.e. the discount rate where NPVs are equal. Draw a rough draft of the two NPV profiles. Hint: figure out the NPV at a zero discount rate. At a discount rate of 12%, which project(s) would you select? At a discount rate of 20%, which project(s) would you select?
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