Asked by Nathalie Almonte on May 03, 2024
Verified
Scanlon Inc.is considering Projects S and L,whose cash flows are shown below.These projects are mutually exclusive,equally risky,and not repeatable.If the decision is made by choosing the project with the higher IRR,how much value will be foregone? Note that under certain conditions,choosing projects on the basis of the IRR will not cause any value to be lost because the one with the higher IRR will also have the higher NPV. WACC: 10.00%01234CFSS$2,050$750$760$770$780CFL−$4,300$1,500$1,518$1,536$1,554\begin{array}{ccccc}\text { WACC: } & 10.00 \% \\&0 & 1 & 2 & 3 & 4 \\\hline \mathrm{CFS}_{\mathrm{S}} &\$ 2,050 & \$ 750 & \$ 760 & \$ 770 & \$ 780 \\\mathrm{CF}_{\mathrm{L}} &-\$ 4,300 & \$ 1,500 & \$ 1,518 & \$ 1,536 & \$ 1,554\end{array} WACC: CFSSCFL10.00%0$2,050−$4,3001$750$1,5002$760$1,5183$770$1,5364$780$1,554
A) $146.59
B) $154.30
C) $162.42
D) $178.67
IRR
Internal Rate of Return, the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.
Mutually Exclusive
Situations or choices where the acceptance or selection of one necessarily excludes the other(s).
Value Foregone
The benefit given up by choosing one investment or action over another alternative; essentially the opportunity cost of a decision.
- Enhance skills in applying the Net Present Value (NPV) framework for investment project assessment.
- Scrutinize and juxtapose projects employing the Internal Rate of Return (IRR) framework.
Verified Answer
Learning Objectives
- Enhance skills in applying the Net Present Value (NPV) framework for investment project assessment.
- Scrutinize and juxtapose projects employing the Internal Rate of Return (IRR) framework.
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