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December 18, 2014

Homework Help: finance

Posted by LL on Monday, October 19, 2009 at 1:06am.

Carlyle Inc. is considering two mutually exclusive projects. Both require an initial investment of
$15,000 at t = 0. Project S has an expected life of 2 years with after-tax cash inflows of $7,000
and $12,000 at the end of Years 1 and 2, respectively. Project L has an expected life of 4 years
with after-tax cash inflows of $5,200 at the end of each of the next 4 years. Each project has a
WACC of 9.00%, and neither can be repeated. The controller prefers Project S, but the CFO
prefers Project L. How much value will the firm gain or lose if Project L is selected over Project S,
i.e., what is the value of NPVL - NPVS?
a. $262.74
b. $291.93
c. $324.37
d. $356.80
e. $392.48

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