A Firm Is Considering Projects S and L,whose Cash Flows

question 76

Multiple Choice

A firm 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 favours the NPV method,and you were hired to advise the firm on the best procedure.If the CEO's preferred criterion is used,how much value will the firm lose as a result of this decision? $\begin{array}{ccccc}\text { WACC: } & 13.00 \% \\&0 & 1 & 2 & 3 & 4 \\\hline \mathrm{CFS}_{\mathrm{S}} &-\$ 1,025 & \$ 375 & \$ 380 & \$ 385 & \$ 390 \\\mathrm{CF}_{\mathrm{L}} &-\$ 2,150 & \$ 750 & \$ 759 & \$ 768 & \$ 777\end{array}$

• A)$5.83
• B)$6.14
• C)$6.46
• D)$6.79

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