Murray Inc A) $18868
B) $198

question 20

Multiple Choice

Murray Inc.is considering Projects S and L,whose cash flows are shown below.These projects are mutually exclusive,equally risky,and not repeatable.The CEO wants to use the IRR criterion,while the CFO favors the NPV method.You were hired to advise Murray on the best procedure.If the wrong decision criterion is used,how much potential value would Murray lose? $\begin{array}{lccccc}\text { WACC: } & 6.00 \% & & & \\\text { Year } & 0 & 1 & 2 & 3 & 4 \\\mathrm{CF}_{\mathrm{S}} & -\$ 1,025 & \$ 380 & \$ 380 & \$ 380 & \$ 380 \\\mathrm{CF}_{\mathrm{L}} & -\$ 2,150 & \$ 765 & \$ 765 & \$ 765 & \$ 765\end{array}$

• A) $188.68
• B) $198.61
• C) $209.07
• D) $219.52
• E) $230.49

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Definitions:

Depreciation Expense

The allocated amount of the cost of an asset that is written off as an expense over its useful life.

Sales Price

The sum of money that a purchaser spends to acquire a product or service from a vendor.

Contribution Margin

The revenue remaining after deducting variable costs, which can be used to cover fixed costs and contribute to profit.

Variable Costs

Costs that change in proportion to the level of production or business activity.