Sexton 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 forgone? 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, so no value will be lost if the IRR method is used. WACC: 9.50% 0 1 2 3 4 CFS -$2,050 $750 $760 $770 $780 CFL -$4,300 $1,500 $1,518 $1,536 $1,554 a. $145.46 b. $226.70 c. $228.58 d. $188.91 e. $230.47

Sexton 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 forgone? 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, so no value will be lost if the IRR method is used. WACC: 9.50% 0 1 2 3 4 CFS -$2,050 $750 $760 $770 $780 CFL -$4,300 $1,500 $1,518 $1,536 $1,554 a. $145.46 b. $226.70 c. $228.58 d. $188.91 e. $230.47

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 11P

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Sexton 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 forgone? 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, so no value will be lost if the IRR method is used. WACC: 12.75% 0 1 2 3 4 CFs -$2050 $750 $760 $770 $780 CF L -$4300 $1500 $1518 $1536 $1554 Options: $24.80 $30.25 $22.32 $28.52 $22.57
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