Author Question: Sadik Company is considering Projects S and L, whose cash flows are shown below. These projects are ... (Read 28 times)

tashina2013 · **on:** Aug 7, 2023

Question 1

Rivoli Roofing is considering mutually exclusive Projects A and B, which have the following cash flows:

Year	Project A Cash Flow	Project B Cash Flow
0	–$300	–$420
1	30	110
2	50	80
3	50	100
4	60	60
5	90	60

At what cost of capital would the two projects have the same NPV?

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6.60%

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7.30%

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8.61%

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9.54%

Question 2

Sadik Company 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 some conditions choosing projects on the basis of the IRR will not cause any value to be lost.

WACC:	7%
	0	1	2	3	4
CF_S	–$1,230	$795	$770
CF_L	–$1,230	$420	$420	$420	$420

◦

$4.29

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$5.38

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$6.10

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$7.09

sin · **Reply #1 on:** Aug 7, 2023

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