# Comparing projects with NPV and IRR method

A firm is considering two projects (Projects S and L), whose cash flows are shown below.

These projects are mutually exclusive, equally risky, and not repeatable.

The CEO wants to use the IRR criterion, while the CFO favors the NPV method.

What is the best procedure?

If the CEO's preferred criterion is used, how much value will the firm lose as a result of this decision?

WACC = 13.00%

Cash Flows (S)

Year 0 = -$1,025

Year 1 = $375

Year 2 = $380

Year 3 = $385

Year 4 = $390

Cash Flows (L)

Year 0 = -$2,150

Year 1 = $750

Year 2 = $759

Year 3 = $768

Year 4 = $777

#### Solution Summary

Solution describes the steps in selecting project from two projects S and L based on IRR method and NPV method. It also determines the loss to company if one criteria is used over other.