Current Design Co A) $13810
B) $149

question 104

Multiple Choice

Current Design Co. is considering two mutually exclusive, equally risky, and not repeatable projects, S and L. Their cash flows are shown below. The CEO believes the IRR is the best selection criterion, while the CFO advocates the NPV. If the decision is made by choosing the project with the higher IRR rather than the one with the higher NPV, how much, if any, value will be forgone, i.e., what's the chosen NPV versus the maximum possible NPV? Note that (1) "true value" is measured by NPV, and (2) under some conditions the choice of IRR vs. NPV will have no effect on the value gained or lost. $\begin{array}{cccccr}r& 7.50 \% & & & \\\text { Year } & 0 & 1 & 2 & 3 & 4 \\\mathrm{CF}_{\mathrm{S}} & -\$ 1,100 & \$ 550 & \$ 600 & \$ 100 & \$ 100 \\\mathrm{CF}_{\mathrm{L}} & -\$ 2,700 & \$ 650 & \$ 725 & \$ 800 & \$ 1,400\end{array}$

• A) $138.10
• B) $149.21
• C) $160.31
• D) $171.42
• E) $182.52

---

Definitions:

Credit Account Balances

The amount owed by a borrower on a credit account, reflecting any purchases, payments, charges, or adjustments.

Equity

The value of an owner’s interest in a property or a business, after deducting liabilities and debts.

Dividends

Dividends are a portion of a company's earnings distributed to shareholders, usually in the form of cash payments or additional shares, reflecting the company's profitability and investment return.

Ledger Account

A record that keeps track of all the transactions related to a particular aspect of a business's finances, such as sales or assets.