Sexton Inc. is considering Projects S and L, whose cash flows are shown below. These projects...

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Finance

Sexton Inc. is considering Projects S and L, whose cash flowsare shown below. These projects are mutually exclusive, equallyrisky, and not repeatable. If the decision is made by choosing theproject with the higher IRR, how much value will be forgone? Notethat under certain conditions choosing projects on the basis of theIRR will not cause any value to be lost because the one with thehigher IRR will also have the higher NPV, so no value will be lostif the IRR method is used.
WACC:
9.50%
0
1
2
3
4
CF_S
-$2,050
$750
$760
$770
$780
CF_L
-$4,300
$1,500
$1,518
$1,536
$1,554
188.91
$145.46
$228.58
$226.70
$230.47

Answer & Explanation Solved by verified expert

4.2 Ratings (915 Votes)

SolutionThe IRR of project S 1806 The IRR of project L 1558 The NPV of project S 3978013The NPV of project L 5867144The project See Answer

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Transcribed Image Text

Sexton Inc. is considering Projects S and L, whose cash flowsare shown below. These projects are mutually exclusive, equallyrisky, and not repeatable. If the decision is made by choosing theproject with the higher IRR, how much value will be forgone? Notethat under certain conditions choosing projects on the basis of theIRR will not cause any value to be lost because the one with thehigher IRR will also have the higher NPV, so no value will be lostif the IRR method is used.WACC:9.50%01234CFS-$2,050$750$760$770$780CFL-$4,300$1,500$1,518$1,536$1,554188.91$145.46$228.58$226.70$230.47

WACC:	9.50%
	0	1	2	3	4
CF_S	-$2,050	$750	$760	$770	$780
CF_L	-$4,300	$1,500	$1,518	$1,536	$1,554