标题: How do you calculate a crossover rate? [打印本页] 作者: fructify 时间: 2011-7-11 17:44 标题: How do you calculate a crossover rate?
EOC 13, Rno.44
Consider two projects with reqd rate of return = 10%
Project 1 : -
CF from year 0 to 4 are -100, 36,36,36,36
NPV 14.12
IRR 16.37%
Project 2:
CF from year 0 to 4 are -100, 0,0,0,175
NPV 19.53
IRR 15.02%
What discount rate would result in same NPV for both projects?
CFAI answer is 13.16(but much explanation in CFAI is not given)
ne1 can help me with how to calculate cross over rate?
Thanks作者: kamara5 时间: 2011-7-11 17:44
calculate for a project with difference of the cashflows
0, 36, 36, 36, -139
that is your crossover rate.
CP作者: disiz64 时间: 2011-7-11 17:44
I see how you came up with the answer, but I don't really understand the concept. A cross-over rate is the discount rate necessary for the 2 projects to have an equal npv? What exactly does that prove?作者: Ionutzakis 时间: 2011-7-11 17:44
when you have taken difference of the cash flows - you have equated the two projects.
now find the irr of the 3rd (differenced) project.
that is the rate that will make the npvs of the two equal.
CP作者: shootingstar 时间: 2011-7-11 17:44
thanks cpk123. it was not in schweser.
what does CP means?作者: Bluetick1010 时间: 2011-7-11 17:44
