IRR Criterion vs. NPV Method
Not what you're looking for?
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, and you were hired to advise the firm on the best procedure. If the CEO's preferred criterion is used, how much value will the firm lose as a result of this decision?
WACC: 3.00%
0 1 2 3 4
CFS -$1,025 $375 $380 $385 $390
CFL -$2,150 $750 $759 $768 $777
Purchase this Solution
Solution Summary
Solution describes the steps to select the appropriate project based upon IRR and NPV methods. It also calculates the value lost by the company if it prefers IRR method over NPV method. IRR is calculated by using suitable built-in function in MS Excel.
Solution Preview
Please refer attached file for better clarity of functions in MS Excel.
IRR Criteria
Year End CFS CFL
0 -1025 -2150
1 375 750
2 380 759
3 385 768
4 390 777
IRR 18.06% 15.58%
IRR is ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
Recent Feedback
- "Thank you"
- "Really great step by step solution"
- "I had tried another service before Brain Mass and they pale in comparison. This was perfect."
- "Thanks Again! This is totally a great service!"
- "Thank you so much for your help!"
Purchase this Solution
Free BrainMass Quizzes
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.