Question

# 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 L, since both projects have IRR's > 0.

d. Neither Project S nor L, since each project's NPV < 0.

e. Project S, since the NPVS > NPVL.

As projects are mutually exclusive, only one among the projects can be chosen.

As NPV pf project S > 0 and NPV of Project L <0, only project S will be chosen

Answer is e. Project S, since the NPVS > NPVL.

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