Question

Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year for 5 years. Project L costs $25,000 and is expected to produce cash flows of $7,400 per year for 5 years. Calculate the two projects' NPVs (in dollars), assuming the cost of capital of 10%. (Round your answers to the nearest cent.)

S$

L$

Calculate the two projects' IRRs (as percents), assuming the cost of capital of 10%. (Round your answers to two decimal places.)

S %

L %

Which project would be selected, assuming they are mutually exclusive, using each ranking method?

The NPV rule says that project  ? (S/ L) should be chosen. The IRR rule says that project  ? (S/ L) should be chosen.

Which should actually be selected if the manager is maximizing stockholder wealth?

project S project or L    

Answer 1