Question
A firm is considering Projects S and L, whose cash flows are shown below. These proje cts are mutually exclusive, equally risky, and not repeatable.
A firm is considering Projects S and L, whose cash flows are shown below. These proje cts are mutually exclusive, equally risky, and not repeatable. The CEO wants to use the IRR criterion, while the CFO favors the NPV method. You were hired to advise the firm on the best procedure. If the wrong decision criterion is used, how much potential value would the firm lose? Hint: 1) use IRR criteria to choose the correct project, and then calculate the NPV of that project. 2) use NPV criteria to choose the correct project. 3) find out the difference in NPVs. WACC: 9% 0 1 2 3 4 CFS -$1,025 $480 $280 $180 $480 CFL -$2,150 $865 $765 $665 $965 Group of answer choices $354.52 $0 $130.07 $218.17 $186.47
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