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# The following two mutually-exclusive business opportunities are currently under consideration by your firm, The Sharper Investor.

The following two mutually-exclusive business opportunities are currently under consideration by your firm, The Sharper Investor. The accounting department has forecasted pro forma cash flows for both projects according to the following table:  (each project is to be funded to require a discount rate of 15%)

Year        Cash Flow (A)       Cash Flow (B)   _

0          -\$525,000           -\$60,000

1             30,000             30,000

2             75,000             15,000

3             75,000              9,000

4          1,125,000              3,000

1. Discounted payback of Project A (above) equals:

a. 3.61 years b. 3.31 years c. 4.0 years d. 3.47 years

2. What is Project A's Internal Rate of Return (SHOW ALL WORK)?

a. 28.37% b. 27.49% c. 27.94% d. 29.13% e. 26.99%

3. The Profitability Index for Project B equals?

a. -\$14,938 b. .9500 c. 1.3316 d. .7510 e. .8854

What is the crossover rate between projects A and B?

(place answer here:____________ SHOW WORK on scratch sheet)

The following examples will guide in your calculations so as to be able to solve the problem adequately as well as handle... View the full answer

1 comment
• hello, for the profitability index please make a few adjustments. it is PV of future cashflows/ initial investment = \$45062/\$60000 = 0.7510
• ProfPeter00
• Apr 04, 2018 at 9:25pm

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