IncIs Considering Projects S and L, Whose Cash Flows Are

question 88

Multiple Choice

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.
$$\begin{array} { | l | r | r | r | r | r | } \hline \text { WACC: } & { 10.75 \% } & & & \\\hline & 0 & 1 & 2 & 3 & 4 \\\hline C F F S _ { S } & - \$ 1,100 & \$ 375 & \$ 375 & \$ 375 & \$ 375 \\\hline C F L & - \$ 2,200 & \$ 725 & \$ 725 & \$ 725 & \$ 725 \\\hline\end{array}$$

• A)$32.12
• B)$35.33
• C)$38.87
• D)$40.15
• E)$42.16

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Definitions:

Inventory Value

The total cost or market value of all the goods and materials held by a company for the purpose of resale.

Units Sold for $55

This term specifies a sales data point, indicating the number of units of a product sold at a price of $55 each.

Periodic Weighted

A method of inventory valuation that assigns a weighted average cost to items, based on the cost of goods available for sale during a period.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold in a company, including materials and labor.