Current Design Co

question 105

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.

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

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Definitions:

Cooperative

Pertaining to the willingness to act together with others for a common purpose or benefit.

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Concerned excessively or exclusively with oneself, often at the expense of others.

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A specific location where a large number of people gather or pass, often leading to a congested space.

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An urban location characterized by a high density of people, typically a bustling intersection or area with commercial or social activity.