Crossover Rate Example

Year 0 1 2 3
Project ABC ($5,000,000) $6,000,000 $4,000,000 $2,000,000
Project XYZ ($8,000,000) $0 $25,000,000
ABC - XYZ $3,000,000 $6,000,000 ($21,000,000) $2,000,000

r NPV (ABC) NPV (XYZ)

0.05 $6,070,078.83 $14,675,737
0.1 $5,262,960 $12,661,157 Graphical Derivation of C
0.15 $4,556,998 $10,903,592 $16,000,000.00
0.2 $3,935,185 $9,361,111
$14,000,000.00
0.25 $3,384,000 $8,000,000
$12,000,000.00
0.3 $2,892,581 $6,792,899
0.35 $2,452,116 $5,717,421 $10,000,000.00
0.4 $2,055,394 $4,755,102 $8,000,000.00
0.45 $1,696,462 $3,890,606 $6,000,000.00
0.5 $1,370,370 $3,111,111
$4,000,000.00
0.55 $1,072,975 $2,405,827
$2,000,000.00
0.6 $800,781 $1,765,625
0.65 $550,825 $1,182,736 $0.00
0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0
0.7 $320,578 $650,519 ($2,000,000.00)
0.75 $107,872 $163,265 ($4,000,000.00)
0.8 ($89,163) ($283,951)
0.85 ($272,146) ($695,398) NPV (ABC)
0.9 ($442,484) ($1,074,792)
0.95 ($601,409) ($1,425,378)
 Crossover rate 76%

Graphical Derivation of Crossover Rate

0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5 0.55 0.6 0.65 0.7 0.75 0.8 0.85 0.9 0.95

NPV (ABC) NPV (XYZ)