Rumpelstiltskin Inc. is considering Projects K and Z, whose cashflows are shown below. These projects are mutually exclusive,equally risky, and not repeatable. The CEO wants to use the IRRcriterion, while the CFO favors the NPV method. You were hired toadvise Rumpelstiltskin Inc on the best procedure. If the wrongdecision criterion is used, how much potential value wouldRumpelstiltskin Inc. lose?
r. | 8.50% | | | | |
Year | 0 | 1 | 2 | 3 | 4 |
CFS | ?$1,052 | $375 | $375 | $375 | $375 |
CFL | ?$2,150 | $755 | $755 | $755 | $755 |
