Project A has a ﬁve-year life and an initial cost of $2,000 and annual cash ﬂows of $700 per year. Project B also has a ﬁve-year life and an initial cost of $3,000 with annual cash ﬂows of $950 per
Year. Given this information, calculate the IRR cross-over rate.
A) 5.93%
B) 6.93%
C) 7.93%
D) 8.93%
E) 9.93%

Question

Quizplus · Accepted Answer

The IRR cross-over rate is found by calculating the IRR of the difference in cash flows between the two projects. The difference in cash flows is $250 per year for 5 years with an initial cost difference of $1,000. Solving for IRR gives approximately 7.93%.

Project a Has a ﬁVe-Year Life and an Initial Cost