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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Definitions:

Nucleoli

Structures within the nucleus of a cell, involved in ribosomal RNA synthesis and ribosome assembly.

Organelles

Specialized structures within a cell that perform a specific function, such as mitochondria, chloroplasts, and the nucleus.

Cell Function

The specific role or activity of a cell within an organism or a cellular system.

Rough ER

A form of endoplasmic reticulum that is studded with ribosomes and involved in protein synthesis.