Posted: July 24th, 2016

What is each project s MIRR at a cost of capital of 10%?

b. If Spencer reinvests earnings in projects with average returns equal to thestock s expected rate of return, what will be next year s EPS? [Hint: g _ROE(Retention ratio).]
11 13

Cummings Products Company is considering two mutually exclusive investments.
The projects expected net cash flows are as follows:
Expected Net Cash Flows
Year Project A Project B
0 ($300) ($405)
1 (387) 134
2 (193) 134
3 (100) 134
4 600 134
5 600 134
6 850 134
7 (180) 0

a. Construct NPV profiles for Projects A and B.
b. What is each project s IRR?
c. If you were told that each project s cost of capital was 10%, which project
should be selected? If the cost of capital was 17%, what would be the proper
d. What is each project s MIRR at a cost of capital of 10%? At 17%? (Hint:
Consider Period 7 as the end of Project B s life.)
e. What is the crossover rate, and what is its significance?

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