NPV profiles: scale differences A company is considering two mutually exclusive expansion plans. Plan A requires a...

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NPV profiles: scale differences
A company is considering two mutually exclusive expansion plans.Plan A requires a $41 million expenditure on a large-scaleintegrated plant that would provide expected cash flows of $6.55million per year for 20 years. Plan B requires a $11 millionexpenditure to build a somewhat less efficient, morelabor-intensive plant with an expected cash flow of $2.47 millionper year for 20 years. The firm's WACC is 10%.
1. NPV profiles for Plan A and Plan B, approximate the crossoverrate to the nearest percent.

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Answer The crossover rate is 1225 It means that tothe nearest it is 12 rounded to 0 decimal placeCalculations and explanationsThe NPV at WACC of 10 for A and B is shown belowYearAs cash flow in millions1rPVIFPV of A cash See Answer

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NPV profiles: scale differencesA company is considering two mutually exclusive expansion plans.Plan A requires a $41 million expenditure on a large-scaleintegrated plant that would provide expected cash flows of $6.55million per year for 20 years. Plan B requires a $11 millionexpenditure to build a somewhat less efficient, morelabor-intensive plant with an expected cash flow of $2.47 millionper year for 20 years. The firm's WACC is 10%.1. NPV profiles for Plan A and Plan B, approximate the crossoverrate to the nearest percent.