Carolina Company is considering Projects S and L, whose cash flows are shown below. These projects are
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Question:
Carolina Company is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and are not repeatable.
WACC: 7.75%
Year 0 1 2 3 4
CFS $1,050 $675 $650
CFL $1,050 $360 $360 $360 $360
- If the decision is made by choosing the project with the higher IRR, how much value will be forgone?
- What is the underlying cause of ranking conflicts between NPV and IRR?
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