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Question
Ryngaert Industries uses the NPV method to establish its capital budget, and it is now considering two mutually exclusive projects whose after-tax cash flows are shown below:
Year Project S Project L
0 u2212$5,000 u2212$7,000
1 2,000 900
2 2,500 4,000
3 2,500 5,000
If the required rate of return is below some rate, then Project L should be selected, whereas if the required rate of return is above that rate then Project S should be selected. What is the "crossover" rate at which the NPV profiles of these projects intersect?
a. 5.21%
b. 7.55%
c. 11.88%
d. 15.66%
e. 18.14%
Answer
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