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A firm is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The
A firm is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The CEO wants to use the IRR criterion, while the CFO favours the NPV method, and you were hired to advise the firm on the best procedure. Briefly discuss which method should be used (if there is a clear preference) and why? No calculations are required. (3 Marks)
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| 1 | 2 | 3 | 4 |
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| CFS | $1,025 | $375 | $380 | $385 | $390 |
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| CFL | $2,150 | $750 | $759 | $768 | $777 |
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