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Beckinridge Plastic Co plans to undertake one of the following two projects, say A and...

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Finance

Beckinridge Plastic Co plans to undertake one of the following two projects, say A and B, for this fiscal year. The cost of project A is $ 120,000 and the cost of B is also $120,000. The firms cost of capital is 7 % per year. After-tax cash flows are estimated to be $ 9,000 per year for 30 years for project A. After-tax cash flows for project B are expected to be $ 8,700 per year forever.
(a) Capital budgeting techniques are very sensitive to the choice of the cost of capital. At what interest rate would Beckinridge be indifferent between these two projects? That is, what is the interest rate at which NPVA = NPVB ? You must show your work and provide exact answer. Also, at this interest rate, what is the NPVA (or NPVB)? Please be precise.

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