Question: Twins Co. analyses two mutually exclusive projects S and L. Their cash flows are shown below. The CEO believes the IRR is the best selection

Twins Co. analyses two mutually exclusive 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 at a

WACC of 7.5%?

Twins Co. analyses two mutually exclusive 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 at a

WACC of 7.5%?

ReplyForward

Year

CEs

CFL

0

-$1,100

-$2,700

$550

$650

2

$600

$725

3

$100

$800

4

$100

$1,400

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