Question

Poston Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive (must choose one or the other), equally risky, and not repeatable. If the decision is made by choosing the project with the higher IRR, how much value will be forgone? You must calculate the IRR and NPV for both projects select the project with the higher IRR and then calculate how much less the NPV is by selecting the project with the higher IRR.

Consider:

Which project/projects should you choose ? Explain.

Do you get the same decision with IRR and NPV? Explain

WACC: 10.25%

Year                           0                1                2                3                4    

CF_S                       -$2,050          $750          $760          $770          $780

CF_L                       -$4,300       $1,500       $1,518       $1,536       $1,554

Answer 1