You are comparing two mutually exclusive projects, Project X and Project Z. The crossover point is 11.4 percent. You have determ

Question

Irina18 [472]

2 years ago

11

You are comparing two mutually exclusive projects, Project X and Project Z. The crossover point is 11.4 percent. You have determ

ined that you should accept project X if the required return is 12.7 percent. This implies you should:

Business

1 answer:

Elis [28] · Answer 1 · 2023-02-10T00:29:12+03:00

Since the crossover point is 11.4 percent and have decided to accept project X because the required return is 12.7 percent, it that implies that we sould always accept Project X if the required return exceeds the crossover rate.

Crossover rate refers to the cost of capital where the net present values of 2 projects are equal.

After the cross over rate, the project X will remain better compared to project Y.

Hence, since the crossover point is 11.4 percent and have decided to accept project X because the required return is 12.7 percent, it implies that we should always accept Project X if the required return exceeds the crossover rate.

Therefore, the Option C is correct.

Missing options "A. accept Project Z if the required return is less than 12.7 percent. B. be indifferent to the projects at any discount rate above 12.7 percent. C. always accept Project X if the required return exceeds the crossover rate. D. always accept Project X E. accept Project Z only when the required return is equal to the crossover rate."