Question
Murray Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The
Murray Inc. 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 favors the NPV method. You were hired to advise Murray on the best procedure. If the wrong decision criterion is used, how much potential value would Murray lose? (10 points)
| WACC: | 6.00% |
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| Year | 0 | 1 | 2 | 3 | 4 |
| CFS | -$1,025 | $380 | $380 | $380 | $380 |
| CFL | -$2,150 | $765 | $765 | $765 | $765 |
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Fundamentals Of Financial Management
Authors: James C. Van Horne
10th Edition
0138596875, 978-0138596873
