Answers
| If rate is 7.86% | ||||||||
| Year | Project A Cash flow | Present value formula | Present value | Year | Project B Cash flow | Present value formula | Present value | |
| 0 | -32,000 | -32,000 | -32,000 | 0 | -32,000 | -32,000 | -32,000 | |
| 1 | 18,000 | =18000/(1+7.86%)^1 | 16,688 | 1 | 12,000 | =12000/(1+7.86%)^1 | 11,126 | |
| 2 | 13,000 | =13000/(1+7.86%)^2 | 11,174 | 2 | 13,000 | =13000/(1+7.86%)^2 | 11,174 | |
| 3 | 9,000 | =9000/(1+7.86%)^3 | 7,172 | 3 | 16,000 | =16000/(1+7.86%)^3 | 12,751 | |
| NPV | 3,035 | NPV | 3,051 | |||||
| If rate is 7.92% | ||||||||
| Year | Project A Cash flow | Present value formula | Present value | Year | Project B Cash flow | Present value formula | Present value | |
| 0 | -32,000 | -32,000 | -32,000 | 0 | -32,000 | -32,000 | -32,000 | |
| 1 | 18,000 | =18000/(1+7.92%)^1 | 16,679 | 1 | 12,000 | =12000/(1+7.92%)^1 | 11,119 | |
| 2 | 13,000 | =13000/(1+7.92%)^2 | 11,162 | 2 | 13,000 | =13000/(1+7.92%)^2 | 11,162 | |
| 3 | 9,000 | =9000/(1+7.92%)^3 | 7,160 | 3 | 16,000 | =16000/(1+7.92%)^3 | 12,730 | |
| NPV | 3,001 | NPV | 3,011 | |||||
| If rate is 8.01% | ||||||||
| Year | Project A Cash flow | Present value formula | Present value | Year | Project B Cash flow | Present value formula | Present value | |
| 0 | -32,000 | -32,000 | -32,000 | 0 | -32,000 | -32,000 | -32,000 | |
| 1 | 18,000 | =18000/(1+8.01%)^1 | 16,665 | 1 | 12,000 | =12000/(1+8.01%)^1 | 11,110 | |
| 2 | 13,000 | =13000/(1+8.01%)^2 | 11,143 | 2 | 13,000 | =13000/(1+8.01%)^2 | 11,143 | |
| 3 | 9,000 | =9000/(1+8.01%)^3 | 7,143 | 3 | 16,000 | =16000/(1+8.01%)^3 | 12,698 | |
| NPV | 2,951 | NPV | 2,951 | |||||
| Answer : | ||||||||
| The crossover point is 8.01% | ||||||||
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