A firm 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 the firm on the best procedure, given a WACC of 15%. If the wrong decision criterion is used, how much potential value would the firm lose? Project Year 0 Year 1 Year 2 Year 3 Year 4 S -$995 million $385 million $400 million $525 million $650 million L -$2.05 billion $705 million $835 million $950 million $1.025 billion $6.04 million O $359.08 million $46.04 million $451.15 million O $405.11 million
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- A firm 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 the firm on the best procedure. If the wrong decision criterion is used, how much potential value would the firm lose? (compare NPVs for projects)WACC: 6.75%Year 0 1 2 3 4 CFS -$1,025 $380 $380 $380 $380CFL -$2,150 $765 $765 $765 $765A firm 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 the firm on the best procedure. If the wrong decision criterion is used, how much potential value would the firm lose? WACC: 6.00% Year 0 1 2 3 4 CFS -$1,025 $380 $380 $380 $380 CFL -$2,150 $765 $765 $765 $765 $198.61 $219.51 $209.07 O $188.67 $230.55A firm 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 the firm on the best procedure. If the wrong decision criterion is used, how much potential value would the firm lose? The WACC = 6.75% 1 2 3 4 CFs -$1,025 $380 $380 $380 $380 CFL -$2,150 $765 $765 $765 $765
- A firm 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 the firm on the best procedure. If the wrong decision criterion is used, how much potential value would the firm lose? WACC: 6.75% 0 1 2 3 4 CFS -$1,025 $380 $380 $380 $380 CFL -$2,150 $765 $765 $765 $765 Please explain and show calculations.1. Basic NPV methods tell us that the value of a project today is NPV0. Time value of money issues also lead us to believe that if we choose not to do the project that it will be worth NPV1 one period from now, such that NPV0 > NPV1. Why then do we see some firms choosing to defer taking on a project. Be complete and thorough in your answer. 2. Briefly describe the agency relationship that exists between the shareholders and the managers of the firm and how it can result in what is referred to as the agency conflict?Plss show complete steps thanks. All parts it is one question only or I'll dislike. I will like for complete ans. With formula
- Please show all work on excel. You just got hired by McKinsey & Company as a financial consultant and they’re paying you an egregious amount of money. Accordingly, they have you working on the tough projects – like this one… Consider the following two mutually exclusive projects available to the firm. Free cash flows for Projects A and B are provided below. Assume the two projects have essentially the same level of riskiness, and your prior analysis indicates that the appropriate risk-adjusted hurdle rate (i.e., the WACC) is 7.45% for both projects. Perform the analysis below and make a recommendation as to which project to pursue. Year 0 1 2 3 4 5 6 Project A -$3,200 $700 $700 $700 $700 $700 $700 Project B -$600 $58 $58 $695 B. Compute the NPV for both projects using the crossover rate as the discount rate. What do you find? c. Compute the NPV for each project (using the WACC of 7.45% as the discount rate). Based on NPV, which project should be selected? Note:-…Your firm uses a 5-year payback period cut-off. Project X has a payback period of 4.25 years. Your manager still has decided to reject the project. Which of the following is NOT a good reason for rejecting Project X? Multiple Choice Project X has a negative NPV Project X has an IRR less than the hurdle rate Project X does not provide requisite liquidity Project X has a Pl of 0.82 The firm has scarcity of capital to accept such projectsThe firm is facing capital rationing challenges. Given the current economic situation, the minimum required rate of return for both projects is 4.37%. Based on the given information, which project should you accept and why? Please show all the calculations by which you came up with the final answer.
- I'm not sure if I am doing this right.Sheaves Corporation economists estimate that a good business environment and a bad business environment are equally likely for the coming year. Management must choose between two mutually exclusive projects. Assume that the project chosen will be the firm’s only activity and that the firm will close one year from today. The firm is obligated to make a $5,400 payment to bondholders at the end of the year. The projects have the same systematic risk, but different volatilities. Consider the following information pertaining to the two projects: Economy Probability Low-VolatilityProject Payoff High-VolatilityProject Payoff Bad .50 $5,400 $4,800 Good .50 6,550 7,150 a. What is the expected value of the firm if the low-volatility project is undertaken? What if the high-volatility project is undertaken? (Do not round intermediate calculations and round your answers to the nearest whole dollar, e.g., 32.) b. What is the…The payback method helps firms establish and identify a maximum acceptable payback period that helps in their capital budgeting decisions. Consider the case of Green Caterpillar Garden Supplies Inc.: Green Caterpillar Garden Supplies Inc. is a small firm, and several of its managers are worried about how soon the firm will be able to recover its initial investment from Project Alpha’s expected future cash flows. To answer this question, Green Caterpillar’s CFO has asked that you compute the project’s payback period using the following expected net cash flows and assuming that the cash flows are received evenly throughout each year. Complete the following table and compute the project’s conventional payback period. For full credit, complete the entire table. (Note: Round the conventional payback period to two decimal places. If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Year 1 Year 2 Year 3 Expected cash flow -$4,500,000…