believes the IRR is the best selection criterion, while the CFO advocates the MI with the higher MIRR, how much, if any, value will be forgone, i.e., what's the 1 measured by NPV, and (2) under some conditions the choice of IRR vs. MIRR1 WACC: 9.00% 1 2 CFs -$1,100 $550 $600 $100 CFL -$2,750 $725 $725 $800 $1,4 O a. $73.38 O b. $96.55 O c. $79.56
believes the IRR is the best selection criterion, while the CFO advocates the MI with the higher MIRR, how much, if any, value will be forgone, i.e., what's the 1 measured by NPV, and (2) under some conditions the choice of IRR vs. MIRR1 WACC: 9.00% 1 2 CFs -$1,100 $550 $600 $100 CFL -$2,750 $725 $725 $800 $1,4 O a. $73.38 O b. $96.55 O c. $79.56
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![Noe Drilling 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
believes the IRR is the best selection criterion, while the CFO advocates the MIRR. If the decision is made by choosing the project with the higher IRR rather than the one
with the higher MIRR, how much, if any, value will be forgone, i.e., what's the NPV of the chosen project versus the maximum possible NPV? Note that (1) "true value" is
measured by NPV, and (2) under some conditions the choice of IRR vs. MIRR will have no effect on the value lost.
WACC:
9.00%
1
2
CFS
-$1,100
$550
$600
$100
$100
CFL
-$2,750
$725
$725
$800
$1,400
O a. $73.38
O b. $96.55
O c. $79.56
O d. $0.00
e. $78.01](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F37666e6b-2193-4059-9d51-0b02c74650b8%2F60f08f1b-fd4f-49d4-8800-e33243c7d462%2Fp2hqw1_processed.png&w=3840&q=75)
Transcribed Image Text:Noe Drilling 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
believes the IRR is the best selection criterion, while the CFO advocates the MIRR. If the decision is made by choosing the project with the higher IRR rather than the one
with the higher MIRR, how much, if any, value will be forgone, i.e., what's the NPV of the chosen project versus the maximum possible NPV? Note that (1) "true value" is
measured by NPV, and (2) under some conditions the choice of IRR vs. MIRR will have no effect on the value lost.
WACC:
9.00%
1
2
CFS
-$1,100
$550
$600
$100
$100
CFL
-$2,750
$725
$725
$800
$1,400
O a. $73.38
O b. $96.55
O c. $79.56
O d. $0.00
e. $78.01
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