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?
r: 6.00% Year0
1
2
3
4
CFS ?$1,025
$380
$380
$380
$380
CFL ?$2,150
$765
$765
$765
$765
A. $188.68
B. $198.61
C. $209.07
D. $219.52
E. $230.49
Answer: C
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