Here are the cash flows for two mutually exclusive projects: Project A B ?? -$ 27, 200 - 27,200 C1 +$10,800 @ C2 +$10,800 @ C3 +$ 10,800 + 34,200 a

a).

We need to find the cross over rate at which NPV of both the projects is same.

It can be found out by finding the IRR of the incremental cashflows of both the projects. Incremental cashflows can be calculated by subtracting cashflows of both the projects.

C0= 0

C1= 10800

C2= 10800

C3= -23400

IRR can be calculated as:

0+10800/(1+r)+10800/(1+r)^2-23400/(1+r)^3= 0.

r= 5.46%.

NPV of project A is greater above the 5.46%.

So, among the given interest rates, Project A is preferred from interest rate of 6%.

b).

IRR is the discount rate at which NPV is 0.
Let IRR be r, then -C+C1/(1+r)+C2/(1+r)^2+....Cn/(1+r)^n= 0; where C is initial investment, C1 to Cn are annual cashflows and r is IRR.

Project A:

-27200+10000/(1+r)+10000/(1+r)^2+10800/(1+r)^3= 0.
r= 9.28%

-27200+34200/(1+r)^3= 0.
r= 7.93%