A finished FIN-350 Topic 7 project criteria comparison example, ranking two exclusive projects by payback, IRR and NPV and explaining the conflict through a crossover rate. Searches like "fin 350 topic 7 assignment example", "fin350 topic 7 sample" and "fin-350 topic 7 example" land here.
What a finished FIN-350 Topic 7 project criteria comparison looks like
The finished comparison uses two labeled illustrative projects, each costing 40,000. Project E returns 38,000, 12,000 and 2,000 over three years; Project L returns 4,000, 8,000 and 50,000. Payback favors E at about 1.2 years against 2.6. The internal rate of return also favors E, about 22.8 percent against 17.5. At the firm's 10 percent cost of capital, though, net present value favors L, about 7,814 against 5,965. The example resolves the conflict by computing the crossover rate, about 13.1 percent, below which L adds more value and above which E does. It explains the disagreement through timing, since E's money arrives early and L's arrives late, and follows net present value because the firm's rate sits below the crossover.
How a FIN-350 Topic 7 example is structured
The comparison is arranged as a set of criteria that disagree, followed by the diagnosis. The first paragraph sets out the two projects, their cash flows by year and the statement that only one can proceed. A payback section computes recovery time for each and notes what the measure ignores. An internal rate of return section solves for each project's rate and reports the ranking it implies. A net present value section discounts both at the cost of capital and reports the opposite ranking. The diagnosis section computes the rate at which the two net present values are equal, using the difference between their cash flows, and draws the profile of each project across rates. A closing section recommends Project L, states why value in dollars outranks a percentage here, and names the discount rate above which the choice would reverse.
Equal cost, different timing
Both projects need 40,000, which removes scale as an explanation and leaves the dates on which money arrives as the only source of disagreement.
Three criteria, two rankings
Payback and internal rate of return prefer Project E while net present value prefers L, and the example lays all three results out together.
The crossover rate located
Solving the difference in cash flows for its own rate gives about 13.1 percent, the point at which the two projects are worth the same.
Profiles drawn across rates
Plotting each project's net present value against the discount rate shows L's line falling faster, because its money arrives later and discounts harder.
A reversal condition named
The recommendation for L holds while the cost of capital stays below the crossover, and the example says so rather than presenting the choice as permanent.
Where marks go in FIN-350 Topic 7
Picking Project E for its higher rate when the criteria conflict, with no reason given, is marked wrong in FIN-350, since for mutually exclusive projects the criterion that measures value in dollars governs. Reporting the conflict without diagnosing its cause leaves out the part of the answer that carries the most weight. Discounting cash flows that already include interest on the project's financing, at a rate that also reflects that financing, counts the cost of borrowing twice. Payback treated as a deciding criterion ignores everything after recovery, including L's largest year. Net present value profiles drawn without the crossover marked miss the point the graph exists to show. A recommendation with no condition for reversal treats the discount rate as certain when it rarely is.
Get a FIN-350 Topic 7 example written to your instructions
Send the FIN-350 Topic 7 problems and the rubric attached in your classroom, with the projects or data your section provided. We write a custom example to them, with payback, IRR and NPV computed for each project, the conflict diagnosed through a crossover rate, the profiles drawn and the reversal condition stated, in 24 to 48 hours. The first one is free.
FIN-350 Topic 7 questions, answered
Why follow net present value when the rates conflict?
Because owners are made richer by dollars of value rather than by percentages, and net present value measures exactly that at the firm's own cost of capital. Internal rate of return also assumes interim cash flows can be reinvested at that same high rate, which is rarely realistic. When the two rank exclusive projects differently, the dollar measure answers the question the firm is actually asking.
What is a crossover rate?
The discount rate at which two projects have the same net present value. It is found by taking the difference between their cash flows year by year and solving for the rate that sets the present value of that difference to zero. In the example it is about 13.1 percent. Below it the late-paying project is worth more; above it, the early-paying one is.
Can a discount rate be applied to the wrong cash flows?
Yes, and FIN-350 marks it as an error. Project cash flows should exclude interest and loan repayments, because the cost of capital already charges for financing, so subtracting interest and then discounting at that rate charges twice. Likewise, discounting a cash flow that occurs today, such as the initial outlay, understates the true cost of starting the project.