Question

A company has the option to invest in project A, project B, or neither (the projects are mutually exclusive and the company has no other investment options). Project A requires an initial investment of $100,000 today and provides cash flows of $35,000 a year for five years. The project will also return back $20,000 in capital in year six. Project B requires a $135,000 investment today and will have cash flows of $40,000 a year for 5 years. The firm’s hurdle rate for these projects is 8%. Which project should be selected (since, the projects are mutually exclusive you cannot invest in both for whatever reason so you should choose the one with the highest NPV if the NPV of that project is positive. If both are negative NPV, then follow the NPV rule)?

a.

Project A

b.

Project B

c.

Neither Project A nor Project B

Answer #1

A company has the option to invest in project A, project B, or
neither (Assume the projects are mutually exclusive and the company
has no other investment options, meaning the company can only
invest in one of the two projects or nothing at all).
Project A requires an initial investment of $120,000 today and
provides cash flows of $35,000 a year for five years. The project
will also return back $20,000 in capital in year six.
Project B requires a...

CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE
PROJECTS
Project S costs $15,000 and its expected cash flows would be
$6,500 per year for 5 years. Mutually exclusive Project L costs
$45,000 and its expected cash flows would be $9,900 per year for 5
years. If both projects have a WACC of 16%, which project would you
recommend?
Select the correct answer.
a. Project S, since the
NPVS > NPVL.
b. Both Projects S and L, since
both projects have NPV's > 0....

(Capital Budgeting Criteria: Mutually Exclusive Projects)
Project S costs $17,000 and its expected cash flows would be
$4,500 per year for 5 years. Mutually exclusive Project L costs
$28,500 and its expected cash flows would be $11,250 per year for 5
years. If both projects have a WACC of 15%, which project would you
recommend?
Select the correct answer.
a. Project L, since the NPVL >
NPVS.
b. Both Projects S and L, since both projects have IRR's >
0....

Benton Exploration Company is considering two mutually exclusive
projects. Project A has a cost of $10,000 and is expected to
generate net cash flows of $4,000 per year for 5 years. Project B
has a cost of $25,000 and is expected to generate net cash flows of
$9,000 per years for 5 years. Benton's cost of capital is 15
percent.
Based on the net present value (NPV) method, which project
should be undertaken?
Group of answer choices
Project A
Project...

10. Problem 11.11 (Capital Budgeting Criteria:
Mutually Exclusive Projects)
eBook
Project S costs $18,000 and its expected cash flows would be
$5,000 per year for 5 years. Mutually exclusive Project L costs
$39,500 and its expected cash flows would be $7,900 per year for 5
years. If both projects have a WACC of 12%, which project would you
recommend?
Select the correct answer.
a. Project S, since the NPVS >
NPVL.
b. Both Projects S and L, since both projects have...

Project S costs $18,000 and its expected cash flows would be
$7,000 per year for 5 years. Mutually exclusive Project L costs
$35,000 and its expected cash flows would be $8,400 per year for 5
years. If both projects have a WACC of 12%, which project would you
recommend? Select the correct answer. a. Project S, since the NPVS
> NPVL. b. Neither Project S nor L, since each project's NPV
< 0. c. Both Projects S and L, since...

Project S requires an initial outlay at t = 0 of $18,000, and
its expected cash flows would be $5,000 per year for 5 years.
Mutually exclusive Project L requires an initial outlay at t = 0 of
$43,000, and its expected cash flows would be $12,000 per year for
5 years. If both projects have a WACC of 12%, which project would
you recommend? Select the correct answer.
a. Both Projects S and L, since both projects have NPV's...

Project S requires an initial outlay at t = 0 of $10,000, and
its expected cash flows would be $6,500 per year for 5 years.
Mutually exclusive Project L requires an initial outlay at t = 0 of
$50,000, and its expected cash flows would be $13,750 per year for
5 years. If both projects have a WACC of 16%, which project would
you recommend? Select the correct answer. a. Project L, since the
NPVL > NPVS. b. Project S,...

Project S requires an initial outlay at t = 0 of $10,000, and
its expected cash flows would be $4,500 per year for 5 years.
Mutually exclusive Project L requires an initial outlay at t = 0 of
$28,500, and its expected cash flows would be $13,200 per year for
5 years. If both projects have a WACC of 12%, which project would
you recommend?
Select the correct answer.
a. Neither Project S nor L, since each project's NPV <...

Project S requires an initial outlay at t = 0 of $12,000, and
its expected cash flows would be $6,500 per year for 5 years.
Mutually exclusive Project L requires an initial outlay at t = 0 of
$45,000, and its expected cash flows would be $13,150 per year for
5 years. If both projects have a WACC of 16%, which project would
you recommend?
Select the correct answer.
a. Project L, since the NPVL >
NPVS.
b. Neither Project...

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