Carolina 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.

Question

Quizplus · Accepted Answer

11ea1b84_8bb4_dbb2_a54a_3d2529c82d38_TB3581_00 
 11ea1b84_8bb4_dbb3_a54a_abf5c2f4b93e_TB3581_00 
 11ea1b84_8bb4_dbb4_a54a_8bedc7d4cb7e_TB3581_00 Note that the WACC is not constrained to be less than the crossover rate.So, there may not be a conflict between NPV and IRR; hence, following the IRR rule may not result in a loss of value.In that case, the correct answer is $0.00.

Carolina Company Is Considering Projects S and L, Whose Cash