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In: Finance

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:

  1. NPV and IRR of the chosen project(s).
  2. What is the Payback period, discounted payback period, and the Profitability index?

WACC:

7.00%

Year

0

1

2

3

4

CFS

−$1,100

$550

$600

$100

$100

CFL

−$2,750

$725

$725

$800

$1,400

Discuss your results of these methods and make a recommendation on the projects to the CEO about which one to go for and why? Please include all formulas.

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Expert Solution

jeff jeffy answered 1 year ago
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