Woodson Inc at What Required Rate of Return Do the Two

question 60

Multiple Choice

Woodson Inc.has two possible projects, Project A and Project B, with the following cash flows: $\begin{array}{rrr}\underline{\text { Year }} & \underline{\text { Project A }} & \underline{\text { Project B }} \\0 & -150,000 & -100,000 \\2 & 100,000 & 45,000 \\3 & 105,000 & 65,000 \\3 & 40,000 & 80,000\end{array}$ . At what required rate of return do the two projects have the same net present value (NPV) ? (In other words, what is the "crossover rate" of the projects' NPV profiles?)

• A)10.3%
• B)13.5%
• C)15.8%
• D)21.7%
• E)34.8%

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Definitions:

Revenue

The total amount of money generated by the sale of goods or services related to a company's primary operations.

Variable Costs

Expenses that fluctuate with the level of output or activity, in contrast to fixed costs which remain constant.

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance.

Profit

The financial gain made in a transaction or business operation, calculated as the excess of revenue over expenses.