Decision is made by choosing project with shorter payback

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Reference no: EM132070174

Yonan Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and repeatable. If the decision is made by choosing the project with the shorter payback, some value may be forgone. How much value will be lost in this instance? Note that under some conditions choosing projects on the basis of the shorter payback will not cause value to be lost.

WACC: 11.75%

0 1 2 3 4

CF-S: -$950, $2500, $800, $0, $0

CF-L: -$2100, $ 4000, $ 800, $800, $1,000

Reference no: EM132070174

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