The estimated cashflows for two mutually exclusive projects areshown below.
(A) Using a cost of capital of 14%, which project should betaken based on the NPV amounts?
(B) Calculate the IRR for both projects.  Based on theIRR amounts, which project should be taken?
(C) Why are your answer to parts A and B not the same?
(D) Using a cost of capital of 17%, which project should betaken based on the NPV amounts?
(E) Create an NPV profile for the net cashflows form the twoprojects with discount rates from 0% to 20% in increments of1%.  You do not need to create the graph.
Notice in your NPV profile that the two lines cross at about16%.  This is called the crossover point.
(F) Use the IRR function to calculate the exact cross-overpoint.
(G) Next use the value you just calculated with the IRR functionas the new discount rate for both projects, and calculate the NPVof both projects. Â
(H) What do you find from your answers to part G?
| A | B |
| 0 | ($350,000) | ($1,200,000) |
| 1 | $140,000 | $410,000 |
| 2 | $130,000 | $350,000 |
| 3 | $110,000 | $330,000 |
| 4 | $90,000 | $270,000 |
| 5 | $70,000 | $210,000 |
| 6 | $50,000 | $150,000 |
| 7 | $50,000 | $150,000 |
| 8 | $50,000 | $150,000 |
