Projects S and L, Whose Cash Flows Are Shown Below

question 90

Multiple Choice

Projects S and L, whose cash flows are shown below, are mutually exclusive, equally risky, and not repeatable.Hooper Inc.is considering which of these two projects to undertake.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, so no value will be lost if the IRR method is used. $\begin{array}{ccrrrr}\text { r: } 10.25 \%\\\text { Year } & 0 & 1 & 2 & 3 &{4} \\\hline\mathrm{CF}_{\mathrm{S}} & -\$ 2,050 & \$ 750 & \$ 760 & \$ 770 & \$ 780 \\\mathrm{CF}_{\mathrm{L}} & -\$ 4,300 & \$ 1,500 & \$ 1,518 & \$ 1,536 & \$ 1,554\end{array}$

• A) $134.79
• B) $141.89
• C) $149.36
• D) $164.29
• E) $205.36

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Definitions:

Hypertonic

A solution that has a higher solute concentration compared to another solution, leading to osmosis out of the cell.

Isotonic

Describes two fluids that have identical solute concentrations.

Electron Transfer Chain

A sequence of protein complexes and small molecules involved in the transfer of electrons, which generates a gradient used to produce ATP in cells.

Cyclic Metabolic Pathway

A series of chemical reactions occurring within a cell, where the end product of one reaction becomes the substrate for the next, in a cycle.