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:

Cytochrome Complex

A group of proteins found within the mitochondrial and chloroplast membranes, playing a key role in electron transport and energy generation.

Thylakoid Membrane

A membrane-bound compartment inside chloroplasts and cyanobacteria, where the light-dependent reactions of photosynthesis occur.

ATP

Adenosine triphosphate is a molecular entity responsible for storing and transmitting energy inside cellular structures.

Calvin Cycle

A series of biochemical reactions taking place in the chloroplasts of photosynthetic organisms, part of the process of carbon fixation in photosynthesis.