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Suppose you are evaluating two mutually exclusive projects, Thing 1 and Thing 2, with the following cash flows:
a. If the cost of capital on both projects is 5%, which project, if any, would you choose? Why?
b. If the cost of capital on both projects is 8%, which project, if any, would you choose? Why?
c. If the cost of capital on both projects is 11%, which project, if any, would you choose? Why?
d. If the cost of capital on both projects is 14%, which project, if any, would you choose? Why?
e. At what discount rate would you be indifferent when choosing between Thing 1 and Thing 2?
f. On the same graph, draw the investment profiles of Thing 1 and Thing 2, indicating the following items:
§ Cross-over discount rate
§ NPV of Thing 1 if the cost of capital is 5%
§ NPV of Thing 2 if the cost of capital is 5%
§ IRR of Thing 1
§ IRR of Thing 2
