Npv versus the maximum possible npv

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Current Design Co. is considering two mutually exclusive, equally risky, and not repeatable projects, S and L. Their cash flows are shown below. The CEO believes the IRR is the best selection criterion, while the CFO advocates the NPV. If the decision is made by choosing the project with the higher IRR rather than the one with the higher NPV, how much, if any, value will be forgone, i.e., what's the chosen NPV versus the maximum possible NPV? The required rate of return is 7.5%.

 Year      0             1         2         3         4   

 CFs    -1,100    $500     $600   $100   $100

 CFL     -2,700   $650     $725   $800   $1400

Reference no: EM131892207

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