Crossover Rate Calculator

Calculate Crossover Rate







Formula

The formula to calculate the crossover rate is:

\[ CR = \frac{NPV1 \times (1 + r)^n}{NPV2 \times (1 + r)^n - NPV1} \]

Where:

What is a Crossover Rate?

The crossover rate is a specific point on the cost of capital curve in the field of corporate finance. It is the rate at which two comparable projects have the same net present value (NPV). The crossover rate is used in capital budgeting to compare the desirability of projects, especially when comparing projects of different sizes or lengths. It helps to identify which project would be more profitable under different circumstances.

Example Calculation

Let's assume the following values:

Using the formula to calculate the crossover rate:

\[ CR = \frac{50000 \times (1 + 0.08)^5}{70000 \times (1 + 0.08)^5 - 50000} \approx 1.39 \]

The crossover rate is approximately 0.1.39.