Project S costs $15,000 and its expected cash flows would be $4,000 per year for 5 years. Mutually exclusive Project L costs $36,000 and its expected cash flows would be $13,400 per year for 5 years. If both projects have a WACC of 16%, which project would you recommend?
Select the correct answer.









NPVL
Year  0  1  2  3  4  5 
Initial Investment  36,000  
Sales Revenue  13,400  13,400  13,400  13,400  13,400  
PV of Net Cash Flow  36,000  11,552  9,958  8,585  7,401  6,380 
WACC  16%  
NPV  7,876 
NPVS
Year  0  1  2  3  4  5 
Initial Investment  15,000  
Sales Revenue  4,000  4,000  4,000  4,000  4,000  
PV of Net Cash Flow  15,000  3,448  2,973  2,563  2,209  1,904 
WACC  16%  
NPV  1,903 
Option I is correct
NPVL > NPVS
Moreover, NPVS < 0
Give a thumbs up if this helped :)
Get Answers For Free
Most questions answered within 1 hours.