By using an excel spreadsheet and IRR function, the cross over rate = 14.85%
Year           Cash Flow (A)           Cash Flow (B)
0                    -58,000                   -58,000
1                      34,000                     21,200
2                     28,000                     25,200
3                     20,000                     30,000
4                      13,600                     25,200
<h3>What is the IRR for each of these projects?</h3>
using an excel spreadsheet and the IRR function:
Project A's IRR = 28.3%
Project B's IRR = 25.7%
(b) If you apply the IRR decision rule, which project should the company accept?
Project A (its IRR is higher)
Requirement 2:
(a) Assume the required return is 14 percent. What is the NPV for each of these projects?
using an excel spreadsheet and the NPV function:
Project A's NPV = $14,921.37
Project B's NPV = $15,156.64
(b) Which project will you choose if you apply the NPV decision rule?
Project B (its NPV is higher)
Requirement 3:
(a) Over what range of discount rates would you choose Project A?
higher than 14.85%
(b) Over what range of discount rates would you choose Project B?
lower than 14.85%
(c) At what discount rate would you be indifferent between these two projects?
crossover rate calculation
Year           Cash Flow (A)           Cash Flow (B)       differential amount
0                    -58,000                   -58,000                       $0
1                      34,000                     21,200                     $12,800
2                     28,000                     25,200                     $2,800
3                     20,000                     30,000                  -$10,000
4                      13,600                     25,200                   -$11,600
using an excel spreadsheet and IRR function, the cross over rate = 14.85%
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