Reading 35 - Capital Budgeting Question

[kyleong123]

Hey I have a question regarding Question 13 in the EOC section. What’s the most direct way of finding the discount rate that would result both the projects to have the same NPV? The solution doesn’t explain how you get to the answer at all hhahahaha

 

[Oscar]

I do not have the curriculum in front of me, but to calculate the crossover rate (=the rate that makes the NPV of 2 projects equal) just subtract for each year the cash flows from project 2 from the cash flow from project 1 and calculate the IRR on the resulting delta cash flow line.
That should give you the correct result.
Best,
Oscar

 

[kyleong123]

Thanks a lot Oscar! I’ll try it out later!