Projects S and L, Whose Cash Flows Are Shown Below

question 59

Multiple Choice

Projects S and L, whose cash flows are shown below, are mutually exclusive, equally risky, and not repeatable. Hooper Inc. is considering which of these two projects to undertake. If the decision is made by choosing the project with the higher IRR, how much value will be forgoneσ Note that under certain conditions choosing projects on the basis of the IRR will not cause any value to be lost because the project with the higher IRR will also have the higher NPV, so no value will be lost if the IRR method is used.
$\begin{array}{cccccr}{r}{: 10.25 \%} & & & & \\\text { Year } & 0 & 1 & 2 & 3 & 4 \\\hline\mathrm{CF}_{\mathrm{S}} & -\$ 2,050 & \$ 750 & \$ 760 & \$ 770 & \$ 780 \\\mathrm{CF}_{\mathrm{L}} & -\$ 4,300 & \$ 1,500 & \$ 1,518 & \$ 1,536 & \$ 1,554\end{array}$

• A) $134.79
• B) $141.89
• C) $149.36
• D) $164.29
• E) $205.36

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Definitions:

Limitations

Constraints or restrictions that affect the scope, validity, or generalizability of research findings.

Standard Deviation

A measure of the amount of variation or dispersion in a set of values, indicating how much the numbers in the dataset deviate from the mean average.

Variance

A measure of the dispersion, indicating how much the values in a dataset differ from the mean.

Measures of Variability

Statistical calculations that describe the distribution or spread of data points within a dataset, such as standard deviation, variance, and range.