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Question
Woodson Inc. has two possible projects, Project A and Project B with the following cash flows:
Year Project A Project B
0 −150,000 −100,000
1 100,000 45,000
2 105,000 65,000
3 40,000 80,000
At what required rate of return do the two projects have the same net present value (NPV)? (In other words, what is the "crossover rate" of the projects' NPV profiles?)
a. 10.3%
b. 13.5%
c. 15.8%
d. 21.7%
e. 34.8%
Answer
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