Pappas Products 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 MIRR.If the decision is made by choosing the project with the higher IRR rather than the one with the higher MIRR,how much,if any,value will be foregone? Note that under some conditions the choice will have no effect on the value gained or lost. $\begin{array}{ccccc}
\text { WACC: } & 11.00 \% \
&0 & 1 & 2 & 3 & 4 \
\hline \mathrm{CFS}_{\mathrm{S}} &-\$ 1,100 & \$ 550 & \$ 600 & \$ 100 & \$ 100 \
\mathrm{CF}_{\mathrm{L}} &-\$ 2,700 & \$ 650 & \$ 725 & \$ 800 & \$ 1,400
\end{array}$
A)-$1.60
B)-$1.44
C)-$1.30
D)$0.00

Question

Quizplus · Accepted Answer

Choosing between projects based on IRR instead of MIRR will not always result in a loss of value. The IRR and MIRR methods can sometimes lead to the same decision, especially if the projects' cash flows are conventional (only one sign change) and the projects are mutually exclusive. The question does not provide enough information to calculate the exact value loss or gain from choosing one project over the other based on IRR versus MIRR. Therefore, without specific IRR and MIRR values and without knowing how these compare to each other for each project, we cannot determine a value foregone, implying the answer is $0.00.

Pappas Products Is Considering Projects S and L,whose Cash Flows