Question

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, since each project's NPV < 0.
d. Project L, since the NPVL > NPVS.
e. Both Projects S and L, since both projects have IRR's > 0.
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Answer #1

Ans d. Project L, since the NPVL > NPVS.

In Mutually exclusive project only one project can be selected.

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