Murray 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 wants to use the IRR criterion, while the CFO favors the NPV method.You were hired to advise Murray on the best procedure.If the wrong decision criterion is used, how much potential value would Murray lose?

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Quizplus · Accepted Answer

11ea1b84_8bb4_3f64_a54a_8f668fbf4a6f_TB3581_00 
 11ea1b84_8bb4_6675_a54a_a52e744e93fd_TB3581_00 
 11ea1b84_8bb4_6676_a54a_573b608717c2_TB3581_00 
 11ea1b84_8bb4_6677_a54a_7771f0626bb1_TB3581_00 
 11ea1b84_8bb4_6678_a54a_0f487b1c0886_TB3581_00 Note that the WACC is constrained to be less than the crossover rate.So, there is a conflict between NPV and IRR; hence, following the IRR rule results in a loss of value.In the next problem the constraint is relaxed.