Langton Inc A) $18590
B) $197

question 55

Multiple Choice

Langton Inc. 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 forgone. In other words, what's the NPV of the chosen project versus the maximum possible NPV? Note that (1) "true value" is measured by NPV, and (2) under some conditions the choice of IRR vs. MIRR will have no effect on the value lost. $\begin{array} { c c c c c c } &r = 700 \% \\\text { Year } & 0& 1 & 2 & 3 & 4 \\ \text { CF }_{S} & - \$ 1,100 & \$ 550 & \$ 600 & \$ 100 & \$ 100 \\\text { CF}_{L} & - \$ 2,750 & \$ 725 & \$ 725 & \$ 800 & \$ 1,400\end{array}$

• A) $185.90
• B) $197.01
• C) $208.11
• D) $219.22
• E) $230.32

---

Definitions:

Trust Receipts

Documents that acknowledge the receipt of goods but allow the buyer to sell or process the goods before payment is made to the seller.

Floor Plan

Financing method used by dealerships that allows them to have a stock of vehicles on their floors for sale; it is a type of short-term financing.

Commercial Paper

An unsecured, short-term debt instrument issued by a corporation, typically used for the financing of payroll, accounts payable, and inventories, and meeting other short-term liabilities.

Organizational Chart

A visual representation that details the structure of an organization, outlining roles, responsibilities, and relationships between various positions.