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These cash flows look a little odd, but the sign only changes once, so we can find an IRR. With some trial and error, you'll see that the NPV is zero at a discount rate of 5.42 percent, so this is the crossover rate.

The IRR for B is higher. However, as we've seen, A has the larger NPV for any discount rate less than 5.42 percent, so the NPV and IRR rankings will conflict in that range. Remember, if there's a conflict, we will go with the higher NPV. Our decision rule is thus very simple: take A if the required return is less than 5.42 per-

Ross et al.: Fundamentals of Corporate Finance, Sixth Edition, Alternate Edition

IV. Capital Budgeting

9. Net Present Value and Other Investment Criteria

© The McGraw-Hill Companies, 2002

CHAPTER 9 Net Present Value and Other Investment Criteria

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