Question

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 S, since the NPVS > NPVL.
IV. Both Projects S and L, since both projects have IRR's > 0.
V. Both Projects S and L, since both projects have NPV's > 0.

Homework Answers

Answer #1
Sloution :-
i) Evaluation of project "S"
Present value of cash inflows =Annual equal cash inflows *PVIFA (PIR,n)
=$4000*PVIFA(15%,5)
=$4000*3.352155
=$13408.62
Note:- PIR=peridice interest rate
n= no of years
NPV of project "S" =Present value of cash inflows - present value of outflows
=$13408.62-$11000
=$2408.62
ii) Evaluation of project "L"
Present value of cash inflows =Annual equal cash inflows *PVIFA (PIR,n)
=$14700*PVIFA(15%,5)
=$14700*3.352155
=$49276.68
Note:- PIR=peridice interest rate
n= no of years
NPV of project "L" =Present value of cash inflows - present value of outflows
=$49276.68-$32000
=$17,276.68
Since the projects are mutually exclusive hence project "L" should be selected since NPVL>NPVS, hence the correct choice would be "ii"
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 $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 $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 $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....
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 $11,000 and its expected cash flows would be $7,000 per year for 5...
Project S costs $11,000 and its expected cash flows would be $7,000 per year for 5 years. Mutually exclusive Project L costs $38,000 and its expected cash flows would be $13,300 per year for 5 years. If both projects have a WACC of 12%, which project would you recommend? Select the correct answer. a. Project L, since the NPVL > NPVS. b. Neither Project S nor L, since each project's NPV < 0. c. Both Projects S and L, since...
Project S costs $14,000 and its expected cash flows would be $6,500 per year for 5...
Project S costs $14,000 and its expected cash flows would be $6,500 per year for 5 years. Mutually exclusive Project L costs $37,500 and its expected cash flows would be $14,700 per year for 5 years. If both projects have a WACC of 13%, which project would you recommend? a. Project L, since the NPVL > NPVS. b. Both Projects S and L, since both projects have NPV's > 0. c. Neither Project S nor L, since each project's NPV...
Project S costs $19,000 and its expected cash flows would be $6,000 per year for 5...
Project S costs $19,000 and its expected cash flows would be $6,000 per year for 5 years. Mutually exclusive Project L costs $38,500 and its expected cash flows would be $14,700 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. Project L, since the NPVL > NPVS. c. Both Projects S and L, since both projects have IRR's...
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...
Project S costs $12,000 and its expected cash flows would be $5,500 per year for 5...
Project S costs $12,000 and its expected cash flows would be $5,500 per year for 5 years. Mutually exclusive Project L costs $26,000 and its expected cash flows would be $11,500 per year for 5 years. If both projects have a WACC of 14%, which project would you recommend? Select the correct answer. a. Both Projects S and L, since both projects have NPV's > 0. b. Project S, since the NPVS > NPVL. c. Neither Project S nor L,...
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,...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT