Kosovski 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.
| WACC: |
6.25% |
|
|
|
|
|
0 |
1 |
2 |
3 |
4 |
| CFS |
-$1,050 |
$675 |
$650 |
|
|
| CFL |
-$1,050 |
$360 |
$360 |
$360 |
$360 |