BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -The two projects intersect in terms of NPV at a discount rate labeled the crossover rate. C) Project A has a higher y-axis intercept for its NPV profile than mutually exclusive Project B. As we proceed past the crossover rate to the right on the x-axis, Project B’s profile will be above Project A’s profile.

Detailed explanation-2: -Crossover Rate is the rate of return (alternatively called the weighted average cost of capital) at which the Net Present Values (NPV) of two projects are equal. It represents the rate of return at which the net present value profile of one project intersects the net present value profile of another project.

Detailed explanation-3: -Crossover rate is the cost of capital where two projects have the same net present values (NPV) or where their NPV profiles intersect. This calculation is often used in analyzing capital budgets as it offers insights about the cost of capital if two mutually exclusive projects are as good as each other.

Detailed explanation-4: -Note that NPV and discount rate have an inverse relationship. The higher the rate, the lower the NPV and vice versa. This is because the future cash flows reduce in value if discounted at a higher rate. Therefore, a lower rate is always desirable.