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 CEObelieves 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 onewith 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" ismeasured by NPV, and (2) under some conditions the choice of IRR vs. MIRR will have no effect on the value lost.WACC:9.00%12CFS-$1,100$550$600$100$100CFL-$2,750$725$725$800$1,400O a. $73.38O b. $96.55O c. $79.56O d. $0.00e. $78.01

Compute the IRR in the following manner:- The result will be as follows:- The IRR of Project is…

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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

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

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