The Walk-Up Window is considering two mutually exclusive projects.Project A has an initial cost of $49,230 and annual cash flows of $31,200 for three years.Project B has an initial cost of $21,400 and annual cash flows of $21,400 for two years.What is the crossover rate?
A)26.18%
B)29.39%
C)15.44%
D)-20.49%
E)15.86%

Question

Quizplus · Accepted Answer

Incremental cash flows:Time 0: -$49,230 - (-$21,400)= -$27,830Year 1: $31,200 - 21,400 = $9,800Year 2: $31,200 - 21,400 = $9,800Year 3: $31,200 - 0 = $31,200Incremental IRR = -$27,830 + $9,800/(1 + IRR)+ $9,800/(1 + IRR)² + $31,200/(1 + IRR)³Incremental IRR = 29.39%

The Walk-Up Window Is Considering Two Mutually Exclusive Projects