Tesar Chemicals Is Considering Projects S and L, Whose Cash

question 41

Multiple Choice

Tesar Chemicals 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 the NPV. If the decision is made by choosing the project with the higher IRR rather than the one with the higher NPV, how much, if any, value will be forgone, i.e., what's the chosen NPV versus the maximum possible NPV? Note that (1) "true value" is measured by NPV, and (2) under some conditions the choice of IRR vs. NPV will have no effect on the value gained or lost.

• A) $138.10
• B) $149.21
• C) $160.31
• D) $171.42
• E) $182.52

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Definitions:

Activity

Any action or series of actions performed by individuals or groups, often aimed at achieving a particular goal or outcome.

Liquidity

A measure of how easily assets can be converted into cash without significant loss in value.

Not-For-Profit Organization

An organization that operates for purposes other than making a profit, often focusing on social, educational, or charitable activities.

Income Statement

A financial statement that reports a company's financial performance over a specific period, detailing revenues, expenses, and net income or loss.