Pappas Products Is Considering Projects S and L,whose Cash Flows

question 100

Multiple Choice

Pappas Products is considering Projects S and L,whose cash flows are shown below.These projects are mutually exclusive,equally risky,and not repeatable.The CEO believes the IRR is the best selection criterion,while the CFO advocates the MIRR.If the decision is made by choosing the project with the higher IRR rather than the one with the higher MIRR,how much,if any,value will be foregone? Note that under some conditions the choice will have no effect on the value gained or lost. $\begin{array}{ccccc}\text { WACC: } & 11.00 \% \\&0 & 1 & 2 & 3 & 4 \\\hline \mathrm{CFS}_{\mathrm{S}} &-\$ 1,100 & \$ 550 & \$ 600 & \$ 100 & \$ 100 \\\mathrm{CF}_{\mathrm{L}} &-\$ 2,700 & \$ 650 & \$ 725 & \$ 800 & \$ 1,400\end{array}$

• A)-$1.60
• B)-$1.44
• C)-$1.30
• D)$0.00

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