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[101].Tesar Chemicals considering Projects S and L, whose cash flows

Question : [101].Tesar Chemicals considering Projects S and L, whose cash flows : 1416409

 

[101].Tesar Chemicals is considering Projects S and L, whose cash flows are shown below.  These projects are mutually exclusive, equally risky, and not repeatable.  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, i.e., what's the chosen NPV versus the maximum possible NPV?  Note that (1) "true value" is measured by NPV, and (2) under some conditions the choice of IRR vs. NPV will have no effect on the value gained or lost.

 

WACC:  7.50%

Year             0   1        2        3        4

CFS-$1,100$550$600$100$100

CFL-$2,700$650$725$800$1,400

 

a.$138.10

b.$149.21

c.$160.31

d.$171.42

e.$182.52

 

[102].A firm is considering Projects S and L, whose cash flows are shown below.  These projects are mutually exclusive, equally risky, and not repeatable.  The CEO wants to use the IRR criterion, while the CFO favors the NPV method.  You were hired to advise the firm on the best procedure.  If the wrong decision criterion is used, how much potential value would the firm lose?

 

WACC:  6.00%

Year             0   1        2        3        4

CFS-$1,025$380$380$380$380

CFL-$2,150$765$765$765$765

 

a.$188.68

b.$198.61

c.$209.07

d.$219.52

e.$230.49

 

[103].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:  10.25%

Year             0   1        2        3        4

CFS-$2,050$750$760$770$780

CFL-$4,300$1,500$1,518$1,536$1,554

 

a.$134.79

b.$141.89

c.$149.36

d.$164.29

e.$205.36

 

[104].Moerdyk & Co. 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, i.e., no conflict will exist.

 

WACC:  10.00%

Year             0   1        2        3        4

CFS-$1,025$650$450$250$50

CFL-$1,025$100$300$500$700

 

a.$5.47

b.$6.02

c.$6.62

d.$7.29

e.$7.82

 

[105].Kosovski Company is considering Projects S and L, whose cash flows are shown below.  These projects are mutually exclusive, equally risky, and are not repeatable.  If the decision is made by choosing the project with the higher IRR, how much value will be forgone?  Note that under some conditions choosing projects on the basis of the IRR will cause $0.00 value to be lost.

 

WACC:  7.75%

Year             0   1        2        3        4

CFS-$1,050$675$650

CFL-$1,050$360$360$360$360

 

a.$11.45

b.$12.72

c.$14.63

d.$16.82

e.$19.35

 

[106].Nast 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 MIRR rather than the one with the higher NPV, how much value will be forgone?  Note that under some conditions choosing projects on the basis of the MIRR will cause $0.00 value to be lost.

 

WACC:  8.75%

Year             0   1        2        3        4

CFS-$1,100$375$375$375$375

CFL-$2,200$725$725$725$725

 

a.$32.12

b.$35.33

c.$38.87

d.$40.15

e.$42.16

 

[107].Yonan 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 shorter payback, some value may be forgone.  How much value will be lost in this instance?  Note that under some conditions choosing projects on the basis of the shorter payback will not cause value to be lost.

 

WACC:  10.25%

Year             0   1        2        3        4

CFS-$950$500$800$0$0

CFL-$2,100$400$800$800$1,000

 

a.$24.14

b.$26.82

c.$29.80

d.$33.11

e.$36.42

 

[108].Noe Drilling Inc. is considering Projects S and L, whose cash flows are shown below.  These projects are mutually exclusive, equally risky, and not repeatable.  The CEO believes the IRR is the best selection criterion, while the CFO advocates the MIRR.  If the decision is made by choosing the project with the higher IRR rather than the one with the higher MIRR, how much, if any, value will be forgone, i.e., what's the NPV of the chosen project versus the maximum possible NPV?  Note that (1) "true value" is measured by NPV, and (2) under some conditions the choice of IRR vs. MIRR will have no effect on the value lost.

 

WACC:  7.00%

Year             0   1        2        3        4

CFS-$1,100$550$600$100$100

CFL-$2,750$725$725$800$1,400

 

a.$185.90

b.$197.01

c.$208.11

d.$219.22

e.$230.32

 

 

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