Arrow Electronics is cons not repeatable. Project S has an initial cost of $1 million and cash wears, while Project L has an initial cost of $2 million and cash inflows of $720,000 for 4 years. The CEO wants to use the IRR criterion, while the CFO favors the NPV method, using a WACC 16.67%. u were hired to advise the firm on the best procedure. If the wrong decision criterion is used, w much potential value would the firm lose? That is, what is the difference between the NPVS these two projects? -answer should be between 112000 and 202000, rounded to even dollars (although decimal

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Question 20
Arrow Electronics is considering Projects S and L, which are mutually exclusive, equally risky, and
not repeatable. Project S has an initial cost of $1 million and cash inflows of $370,000 for 4
years, while Project L has an initial cost of $2 million and cash inflows of $720,000 for 4 years.
The CEO wants to use the IRR criterion, while the CFO favors the NPV method, using a WACC
of 6.67%.
You were hired to advise the firm on the best procedure. If the wrong decision criterion is used,
how much potential value would the firm lose? That is, what is the difference between the NPVs
for these two projects?
Your answer should be between 112000 and 202000, rounded to even dollars (although decimal
places are okay), with no special characters.
1,000,000
Transcribed Image Text:Question 20 Arrow Electronics is considering Projects S and L, which are mutually exclusive, equally risky, and not repeatable. Project S has an initial cost of $1 million and cash inflows of $370,000 for 4 years, while Project L has an initial cost of $2 million and cash inflows of $720,000 for 4 years. The CEO wants to use the IRR criterion, while the CFO favors the NPV method, using a WACC of 6.67%. You were hired to advise the firm on the best procedure. If the wrong decision criterion is used, how much potential value would the firm lose? That is, what is the difference between the NPVs for these two projects? Your answer should be between 112000 and 202000, rounded to even dollars (although decimal places are okay), with no special characters. 1,000,000
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