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Problem:

Atlas Corp. is considering two mutually exclusive projects. Both require an initial investment of $10,000 at t = 0. Project S has an expected life of 2 years with after-tax cash inflows of $6,000 and $8,000 at the end of Years 1 and 2, respectively. Project L has an expected life of 4 years with after-tax cash inflows of $4,373 at the end of each of the next 4 years. Each project has a WACC of 9.25%, and Project S can be repeated with no changes in its cash flows. The controller prefers Project S, but the CFO prefers Project L.

Required:

Question: 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. 56.50

B. 62.15

C. 68.37

D. 75.21

E. 82.73

Note: Solve the problem and show all work.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91174241

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