Question 1. 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
Question 2. Malholtra Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's MIRR can be less than the WACC (and even negative), in which case it will be rejected.
WACC: 10.00%
Year 0 1 2 3 4
Cash flows -$850 $300 $320 $340 $360