Maine Company is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and are not repeatable.
WACC: 7.75%
Year 0 1 2 3 4
CFS −$2,000 $1,500 $1,200
CFL −$2,000 $800 $800 $800 $800
Answer the following questions:
1) Calculate NPV, IRR, and MIRR for Project S and L. (Please copy and paste your excel function in here as your work detail).
2) If the decision is made by choosing the project with the higher IRR, how much value will be forgone?
3) Explain the underlying cause of ranking conflicts between NPV and IRR.