Question

In: Finance

A firm is considering Projects S and L, whose cash flows are shown below. These projects...

  1. 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 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?

    WACC:

    7.75%

    0

    1

    2

    3

    4

    CF S

    -$1,025

    $380

    $380

    $380

    $380

    CF L

    -$2,150

    $765

    $765

    $765

    $765

    $166.73

    $157.30

    $168.31

    $136.85

    $152.58

Solutions

Expert Solution

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

A firm is considering Projects S and L, whose cash flows are shown below. These projects...
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 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? WACC: 6.75% 0 1 2 3 4 CFS -$1,025 $380 $380 $380 $380 CFL -$2,150...
A firm is considering Projects S and L, whose cash flows are shown below. These projects...
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 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? WACC: 6.75% 0 1 2 3 4 CFS -$1,025 $380 $380 $380 $380 CFL -$2,150...
A firm is considering Projects S and L, whose cash flows are shown below. These projects...
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 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? Interest rate: 10.00% Year 0 1 2 3 4 CFS -$1,000 $380 $380 $380 $380...
Firm ABC is considering Projects S and L, whose cash flows are shown below. These projects...
Firm ABC is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. WACC: 8.75% Year 0 1 2 3 4 CFS −$1,100 375 375 375 375 CFL −$2,200 725 725 725 725 Q1. NPV of project S and project L Q2. IRR of project S and project L Q3. MIRR of project S and project L Q4. If the decision is made by choosing the project with the...
A tire manufacturing firm is considering Projects S and L, whose cash flows are shown below....
A tire manufacturing firm is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. What is the cost of capital at which the decision to take project L (or S) based on NPV will contradict the decision based on IRR method? Hint: Calculate the crossover rate and explain how the crossover rate would influence your decision to take project L or project S based on NPV vs. IRR?...
A company is considering Projects S and L, whose cash flows are shown below. These projects...
A company is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The CEO believes the IRR is the best selection criterion, while the CFO advocates other methods. If the decision is made by choosing the project with the higher IRR, how much, if any, value will be forgone, i.e., what's the: NPV and IRR of the chosen project(s). What is the Payback period, discounted payback period, and...
Nast Inc. is considering Projects S and L, whose cash flows are shown below. These projects...
Nast Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone? Note that under some conditions choosing projects on the basis of the MIRR will cause $0.00 value to be lost. WACC: 10.75% 0 1 2 3 4 CFS -$1,100...
Kosovski Company is considering Projects S and L, whose cash flows are shown below. These projects...
Kosovski Company is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and are not repeatable. If the decision is made by choosing the project with the higher IRR, how much value will be forgone? Note that under some conditions choosing projects on the basis of the IRR will cause $0.00 value to be lost. WACC: 7.75 CFs Y0: $-1050 Y1 $675 $650 CFl Y0 $-1050 Y1 $360 Y2 360 Y3$360...
Yonan Inc. is considering Projects S and L, whose cash flows are shown below. These projects...
Yonan Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the shorter payback, some value may be forgone. How much value will be lost in this instance? Note that under some conditions choosing projects on the basis of the shorter payback will not cause value to be lost WACC 11.75% 0 1 2 3 4 CFs...
Nast Inc. is considering Projects S and L, whose cash flows are shown below. These projects...
Nast Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone? Note that under some conditions choosing projects on the basis of the MIRR will cause $0.00 value to be lost. WACC: 10.75% 0 1 2 3 4 CFS -$1,100...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT