Suppose Canadian Space Flight Group Has Two Mutually Exclusive Projects

question 122

Essay

Suppose Canadian Space Flight Group has two mutually exclusive projects: space flight using an Airbus and space flight using a Bombardier aircraft.
Project Airbus requires an initial cash outlay of $325,000 and is expected to provide after-tax cash flows of $60,000 in year 1, $80,000 in year 2, $150,000 in year 3, and $180,000 in year 4.
Project Bombardier requires an initial cash outlay of $250,000 and is expected to provide after-tax cash flows of $70,000 in year 1, $100,000 in year 2, $120,000 in year 3, and $70,000 in year 4.
The appropriate discount rate is 12%.
a)Find the IRRs of both projects.
b)Find the crossover rate of the two projects.
c)Which project should be accepted using the information in (B)? Why?

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