Question: Falcon Design Co. is considering two mutually exclusive, equally risky, and not repeatable projects, S and L. Their cash flows are shown below. The CEO
Falcon 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 based on the IRR rule rather than based on the NPV rule, how much, if any, value will be forgone, i.e., what is the difference in the chosen NPV and the maximum possible NPV? The cost of capital for both projects is 12%. Ignore dollar sign and round your answer to two decimal places (e.g., xx.xx). Year o 1 3 4 CF for S CF for L $100 -$1,100 -$2,700 2 $600 $725 $550 $650 $100 $1,400 $800
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
