Your physics homework can be a real challenge, and the due date can be really close - feel free to use our assistance and get the desired result.
Be sure that math assignments completed by our experts will be error-free and done according to your instructions specified in the submitted order form.
Our experts will gladly share their knowledge and help you with programming homework. Keep up with the world's newest programming trends.
Get a free quote.
Check the website
for updates.
Receive your completed assignment.
Easy as ABC!
Just provide us with clear instructions and wait for the completed assignment.

Answer on Economics of Enterprise Question for lamarcus streeter

Question #6361

5. 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

Expert's answer

c. $209.07

NPV:
PV[S] = -1025+380•∑(1/1.06^n) ≈ +291.74
PV[L] = -2150+765•∑(1/1.06^n) ≈ +500.8
PV[L] > PV[S]

IRR:
0 = -1025+380•∑(1/(1+IRR)^n) → IRR[S]≈17.861%
0 = -2150+765•∑(1/(1+IRR)^n) → IRR[L]≈15.781%
IRR[L] < IRR[S]
15.781 < 17.861

Since projects are mutually exclusive - then project [L] is preferred (despite lower
IRR - higher investment volume pays out), obviously assuming firm doesn't have any other investment opportunities.

Δ ≈ 500.8 - 291.74 = 209.07

Comments

No comments

Leave a comment

Related Questions

Link to us

Share with friends

Get homework help with Assignment Expert:
free questions
Questions and Answers
approved by clients
It looks like everything is working as it should. I think that in the future I will use you guys again.
Fjoralda on October 2010
solving policy
solving policy
satisfaction
guarantee
paypal
Pay us safely via PayPalPayPal
We deliver professional assignment and homework help for students in USA, UK, Canada, Australia, AE and all over the world.
Terms and Conditions | Privacy Policy | Service
© 2014 BrainRouter LTD. All rights reserved.