In Figure 9.8, the NPV profiles cross at about 11 percent. How can we determine just what this crossover point is? The crossover rate, by definition, is the discount rate that makes the NPVs of two projects equal. To illustrate, suppose we have the following two mutually exclusive investments:
Investment B | Investment A | Year |
-$500 | -$400 | 0 |
320 | 250 | 1 |
340 | 280 | 2 |
What’s the crossover rate?