Markman & Sons Is Considering Projects S and L A) $547
B) $6

question 105

Multiple Choice

Markman & Sons is considering Projects S and L.These projects are mutually exclusive, equally risky, and not repeatable and their cash flows are shown below.If the decision is made by choosing the project with the higher IRR, how much value will be forgone? Note that under certain conditions choosing projects on the basis of the IRR will not cause any value to be lost because the project with the higher IRR will also have the higher NPV, i.e., no conflict will exist. $$\begin{array} { c c c c c c } { \mathrm { r } : 10.00 \% } & & & \\\text { Y ear } & 0 & 1 & 2 & 3 & 4 \\\hline \mathrm { CF } _ { \mathrm { S } } & - \$ 1,025 & \$ 650 & \$ 450 & \$ 250 & \$ 50 \\\mathrm { CF } _ { \mathrm { L } } & - \$ 1,025 & \$ 100 & \$ 300 & \$ 500 & \$ 700\end{array}$$

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Definitions:

Direct Labor Costs

Expenses associated with the wages of employees who are directly involved in the production process of goods or services.

Indirect Labor Costs

Costs associated with employees who do not directly work on a product, but whose services are necessary for the production process.

Job Cost Sheets

Documents that track the direct and indirect costs associated with a specific job or project, helping in assessing its profitability.

Work in Process Inventory

An accounting term for the partially finished goods or materials that are in various stages of the production process.