You are comparing two mutually exclusive projects. The crossover point is 12.3 percent. You have determined that you should accept project A if the required return is 13.1 percent. This implies you should:
A) always accept Project A.
B) be indifferent to the projects at any discount rate above 13.1 percent.
C) always accept Project A if the required return exceeds the crossover rate.
D) accept Project B only when the required return is equal to the crossover rate.
E) accept Project B if the required return is less than 13.1 percent.

Question

You are comparing two mutually exclusive projects. The crossover point is 12.3 percent. You have determined that you should accept project A if the required return is 13.1 percent. This implies you should: 
A) always accept Project A. 
B) be indifferent to the projects at any discount rate above 13.1 percent. 
C) always accept Project A if the required return exceeds the crossover rate. 
D) accept Project B only when the required return is equal to the crossover rate. 
E) accept Project B if the required return is less than 13.1 percent.

Quizplus · Accepted Answer

The crossover rate is the point where the two projects have equal net present values. So, if the required return is greater than the crossover rate (in this case, 12.3%), Project A will have a higher net present value than Project B. Therefore, you should always accept Project A if the required return exceeds the crossover rate.

You Are Comparing Two Mutually Exclusive Projects