Question

CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS Project S costs $17,000, and its expected cash flows would...

CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS Project S costs $17,000, and its expected cash flows would be $5,000 per year for 5 years. Mutually exclusive Project L costs $30,000, and its expected cash flows would be $8,750 per year for 5 years. If both projects have a WACC of 12%, which project would you recommend? Explain. Which project would you recommend? Explain.

Homework Answers

Answer #1

S:

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=5000/1.12+5000/1.12^2+5000/1.12^3+5000/1.12^4+5000/1.12^5

=18023.88

NPV=Present value of inflows-Present value of outflows

=18023.88-17000

=$1023.88(Approx)

L:

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=8,750/1.12+8,750/1.12^2+8,750/1.12^3+8,750/1.12^4+8,750/1.12^5

=31541.79

NPV=Present value of inflows-Present value of outflows

=31541.79-30,000

=$1541.79(Approx)

Hence since projects are mutually exclusive;project L must be selected only having higher NPV.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Capital budgeting criteria: mutually exclusive projects. Project S costs $17,000 and its expected cash flow would...
Capital budgeting criteria: mutually exclusive projects. Project S costs $17,000 and its expected cash flow would be $5,000 per year 5 years. Mutually exclusive Project L costs $30,000 and its expected cash flow would be $8,750 per year for 5 years. If both projects have a WACC of 12%, which project would you recommend? Explain. **Show Work**
(Capital Budgeting Criteria: Mutually Exclusive Projects) Project S costs $17,000 and its expected cash flows would...
(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....
CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS Project S costs $15,000 and its expected cash flows would...
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 $15,000 and its expected cash flows would...
Capital budgeting criteria: mutually exclusive projects Project S costs $15,000 and its expected cash flows would be $5,500 per year for 5 years. Mutually exclusive Project L costs $40,500 and its expected cash flows would be $10,800 per year for 5 years. If both projects have a WACC of 15%, which project would you recommend? Select the correct answer. I. Both Projects S and L, since both projects have NPV's > 0. II. Project L, since the NPVL > NPVS....
Capital budgeting criteria: mutually exclusive projects Project S costs $11,000 and its expected cash flows would...
Capital budgeting criteria: mutually exclusive projects Project S costs $11,000 and its expected cash flows would be $4,000 per year for 5 years. Mutually exclusive Project L costs $32,000 and its expected cash flows would be $14,700 per year for 5 years. If both projects have a WACC of 15%, which project would you recommend? Select the correct answer. I. Neither S or L, since each project's NPV < 0. II. Project L, since the NPVL > NPVS. III. Project...
11-11 CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS $225 $225 $50 $49 Project S costs $15,000, and...
11-11 CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS $225 $225 $50 $49 Project S costs $15,000, and its expected cash flows would be $4,500 per year for 5 years. Mutually exclusive Project L costs $37,500, and its expected cash flows would be $11,100 per year for 5 years. If both projects have a WACC of 14%, which project would you recommend? Explain
10.  Problem 11.11 (Capital Budgeting Criteria: Mutually Exclusive Projects) eBook Project S costs $18,000 and its expected...
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 $13,000 and its expected cash flows would be $5,000 per year for 5...
Project S costs $13,000 and its expected cash flows would be $5,000 per year for 5 years. Mutually exclusive Project L costs $34,500 and its expected cash flows would be $11,100 per year for 5 years. If both projects have a WACC of 15%, 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. c. Both Projects S and L,...
Project S costs $16,000 and its expected cash flows would be $4,000 per year for 5...
Project S costs $16,000 and its expected cash flows would be $4,000 per year for 5 years. Mutually exclusive Project L costs $29,500 and its expected cash flows would be $9,300 per year for 5 years. If both projects have a WACC of 14%, which project would you recommend? Select the correct answer. a. Neither Project S nor L, since each project's NPV < 0. b. Both Projects S and L, since both projects have IRR's > 0. c. Project...
Project S costs $19,000 and its expected cash flows would be $6,500 per year for 5...
Project S costs $19,000 and its expected cash flows would be $6,500 per year for 5 years. Mutually exclusive Project L costs $32,000 and its expected cash flows would be $8,850 per year for 5 years. If both projects have a WACC of 13%, 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 NPV's > 0 . c. Both Projects S and...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT