Anderson Associates Is Considering Two Mutually Exclusive Projects That Have

question 17

Multiple Choice

Anderson Associates is considering two mutually exclusive projects that have the following cash flows:​​​ $\begin{array}{lrr} & \text { Project 1 } & {\text { Project 2 }} \\ \text { Year }& \text{ Cash Flow }&\text { Cash Flow }\\\hline0 & -\$ 10,000 & -\$ 8,000 \\1 & 1,000 & 7,000 \\2 & 2,000 & 1,000 \\3 & 6,000 & 1,000 \\4 & 6,000 & 1,000\end{array}$ ​​At what cost of capital do the two projects have the same NPV? (That is,what is the crossover rate?)

• A)11.20%
• B)12.26%
• C)13.03%
• D)14.15%

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Definitions:

Adjusted Trial Balance

A financial statement that shows the balances of all accounts, including those adjusted, at the end of an accounting period.

Post-closing Trial Balance

A list of permanent accounts and their balances after a company has journalized and posted closing entries.

Net Income

The total profit of a company after all expenses, taxes, and costs have been subtracted from total revenue, indicating financial performance.

Income Statement

A financial document that outlines a company's revenues, expenses, and net income over a specific period of time.