Question

Projects A and B are mutually exclusive. Project A has cash flows of -$10,000, $5,100, $3,400, and $4,500 for years 0 to 3, respectively. Project B has cash flows of -$10,000, $4,500, $3,400, and $5,100 for years 0 to 3, respectively. What is the crossover rate for these two projects?

Answer 1

Answer:

The crossover rate is 0%

Explanation:

Crossover rate is the rate of return at which the net present values (NPV) of two projects are equal. In this case, as the initial investments and the total cash flow are equals but only differs the distribution in time, the only rate that equals both projects is not rate at all.