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

question 87

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. $$\begin{array} { l c c c c c } \text { WACC: } & 10.00 \% \\\text { Year: }&0& 1 & 2 & 3 & 4 \\\hline \text { CFS }& -\$ 1,025 & \$ 650 & \$ 450 & \$ 250 & \$ 50 \\\text { CFL }& - \$ 1,025 & \$ 100 & \$ 300 & \$ 500 & \$ 700\end{array}$$

• A) $5.47
• B) $6.02
• C) $6.62
• D) $7.29
• E) $7.82

---

Definitions:

Stock

Shares of ownership in a corporation or assets that represent an ownership interest.

Shortage Costs

The costs incurred when demand exceeds supply, including lost sales, expedited shipping fees, and decreased customer satisfaction.

Disrupted Production

Interruptions in the normal flow of manufacturing processes due to unforeseen events, leading to delays and potential financial losses.

Lost Sales

The potential revenue that a company misses out on due to being out of stock, having insufficient capacity, or other reasons for not fulfilling customer demand.