Question

Swenson's is considering two mutually exclusive projects, Projects A and B, and has determined that the crossover rate for these projects is 11.7%. Given this you know that:


a. The project that is preferred at a discount rate of 11% will be the opposite project of that preferred at a discount rate of 12%.

b. Both projects have a negative NPV at discounts rates greater than 11.7%.

c. Both projects have a zero NPV at a discount rate of 11.7%.

d. Neither project will be accepted if the discount rate is less than 11.7%.

Answer 1

Answer: [a]

Explanation:

Before we begin, let us understand some important things to helping us choose the right option.

Note: One project would be acceptable above the crossover rate and the other project would be acceptable below the crossover rate. WHY?

This is because the crossover rate on the net present value profile is where the internal rate of return IRR of one project intersects the IRR of another project.

Also we can take sense from the fact that the NPV of another project will be higher at 12%, since it is greater than discount rate of 11.7%.

cheers i hope this helps!!!!!

Answer 2

Answer:

the project that is preferred at a discount rate of 11% will be the opposite project of that preferred at a discount rate of 12% ( A )

Explanation:

two mutually exclusive projects are projects out of which only one can be selected based on profitability and the other project will be dropped, the crossover rate ( the discount rate at which the present values of the mutually exclusive projects will be the same ) is a determinant in the case of picking which project to carryout because any of the projects with discount rate below or above the crossover rate will be picked  and the other dropped based on the present values of the project