Sadik Company Is Considering Projects S and L,whose Cash Flows

question 3

Multiple Choice

Sadik Company is considering Projects S and L,whose cash flows are shown below.These projects are mutually exclusive,equally risky,and not repeatable.If the decision is made by choosing the project with the higher IRR,how much value will be foregone? Note that under some conditions choosing projects on the basis of the IRR will cause $0.00 value to be lost. $\begin{array}{ccccc}\text { WACC: } & 8.00 \% \\&0 & 1 & 2 & 3 & 4 \\\hline \mathrm{CFS}_{\mathrm{S}} &-\$ 1,050 & \$ 675 & \$ 650 & & \\\mathrm{CF}_{\mathrm{L}} &-\$ 1,050 & \$ 360 & \$ 360 & \$ 360 & \$ 360\end{array}$

• A)$9.09
• B)$10.10
• C)$11.10
• D)$12.22

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Definitions:

Conjunction Error

A cognitive bias that arises when people estimate the combination of two events to be more likely than one of the events in isolation.

Weather Forecaster

An individual or system that predicts the weather conditions using data from various sources, including satellite imagery, atmospheric conditions, and computer models.

Hot and Humid

Hot and humid refers to weather conditions characterized by high temperatures and high levels of moisture in the air, often causing discomfort.

Groupthink

A phenomenon where a group's desire for harmony or conformity results in an irrational or dysfunctional decision-making outcome.