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A company is considering two equally risky, mutually exclusive projects A and B. The cost of capital is 11%. The CEO wants to use the
A company is considering two equally risky, mutually exclusive projects A and B. The cost of capital is 11%. The CEO wants to use the IRR criterion, while the CFO favors the NPV method. If the CEO's preferred criterion is used, how much value will the firm lose as a result of this decision?
Year | Project A | Project B |
0 | -$4,000 | -$2,000 |
1 | 2,000 | 1,000 |
2 | 2,100 | 1,100 |
3 | 2,200 | 1,200 |
4 | 2,300 | 1,300 |
1102.45 | ||
1239.72 | ||
1037.35 | ||
1312.13 | ||
1169.87 |
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