What is the chosen npv versus the maximum possible npv

Assignment Help Finance Basics
Reference no: EM13485749

Tesar Chemicals 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 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? Note that (1) ""true value"" is measured by NPV, and (2) under some conditions the choice of IRR vs. NPV will have no effect on the value gained or lost.

WACC: 7.50%

Year

0

1

2

3

4

CFS

-$1,100

$550

$600

$100

$100

CFL

-$2,700

$650

$725

$800

$1,400

Reference no: EM13485749

Questions Cloud

C of 10 years with an unguaranteed residual value of 35000 : assume that on january 1 2014 yard waste corp. signs a 5-year noncancelable lease agreement to lease an
Rvenues and other operating costs are expected to be : fool proof software is considering a new project whose data are shown below. the equipment that would be used has a
Hagar co computed an overhead rate for machining costs : hagar co. computed an overhead rate for machining costs 1500000 of 15 per machine hour. machining costs are driven by
A project has an initial outlay of 100000 it has a single : a project has an initial outlay of 100000. it has a single payoff at the end of year 4 of 200000. what is the internal
What is the chosen npv versus the maximum possible npv : tesar chemicals is considering projects s and l whose cash flows are shown below. these projects are mutually
Barrington bears bb has developed the following sales : barrington bears bb has developed the following sales forecasts for the next few months january 500 february 600 march
The company manufactures tennis rackets tennis balls tennis : love all is a fairly large manufacturing company located in the southern united states. the company manufactures tennis
Fernando designs is considering a project that has the : fernando designs is considering a project that has the following cash flow and wacc data. what is the projects
What is opportunity cost and why is it an important concept : what is opportunity cost and why is it an important concept in the capital budgeting process? the opportunity cost

Reviews

Write a Review

Finance Basics Questions & Answers

  Compute imiotek''s weighted average cost of capital

Compute Imiotek's weighted average cost of capital.  Calculate the net present value if Innotek was to continue production of the SMR HDD locally.

  What is the value of each warrant

However, with the warrants attached the bonds will pay a 6% annual coupon and can still be issued at the par value of $1,000. There are 30 warrants attached to each bond. What is the value of each warrant?

  Prepare a schedule of cost of goods manufactured

Prepare a Schedule of Cost of Goods Manufactured statement for the Dallas Corp

  Question on fundamentals of managerial finance

The Beasley Company has been experiencing declining earnings, but has just declared a 50% salary rise for its top executives. A dissident group of shareholder wants to oust the existing board of directors.

  What impact will the adjustment have on coleman 2007

Because of the holidays, no salary accrual was made for the last week of the year. Salaries for the last week totaled $3.5 million and were paid on January 4, 2008.

  What is the information contained in this quote

Given the following Euro to $ Exchange rate of 1.46, what is the information contained in this quote? If the Purchasing Power Parity Theory is correct, what is true about the relationship between the US dollar and the Euro at this exchange rate?

  Ebit and optimal level of leverage

Describe EBIT and discuss why optimal level of leverage from a tax-saving perspective is the level at which interest equals EBIT.

  What return did dayne earn each year he held the stock

When he purchased the stock two years ago, dayne paid $59.50 per share. Every three months during the time that he held the stock, dayne received a quarterly dividend equal to $.50.

  What will net increase or decrease in the annual flotation

The amortization of flotation costs reduces taxes, and thus provides an annual cash flow. What will the net increase or decrease in the annual flotation cost tax savings be if refunding takes place?

  Analyze the profit or loss for value of the underlying asset

Forward contract payout construct a delivery date profit or loss graph for a short position in a forward contract with a delivery price of $75.00. Analyze the profit or loss for values of the underlying asset ranging from $45.00 to $95.00.

  Discuss the two alternatives and the dradeoffs associated

If Mr. Baldwin purhases the warrants and converts them to common stock in 1 year, what is his total gain if the market price of common shares is actually $32? Ignore brokerage fees and taxes)

  Savings account for each of five years

You plan to deposit $250 into the savings account for each of five years, beginning 1 year from now. Interest rate is 9% compounded annually. Find out the future value in each of the following cases.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd