Project S requires an initial outlay at t = 0 of $18,000, and its expected cash flows would be $6,500 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $31,000, and its expected cash flows would be $9,550 per year for 5 years. If both projects have a WACC of 15%, which project would you recommend? a. Project S, since the NPVS > NPVL- b. Both Projects S and L, since both projects have NPV's > 0. c. Neither Project S nor L, since each project's NPV < 0. d. Both Projects S and L, since both projects have IRR's > 0. e. Project L, since the NPV > NPVS.

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 10P: Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year...
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Project S requires an initial outlay at t = 0 of $18,000, and its expected cash
flows would be $6,500 per year for 5 years. Mutually exclusive Project L
requires an initial outlay at t = 0 of $31,000, and its expected cash flows
would be $9,550 per year for 5 years. If both projects have a WACC of 15%,
which project would you recommend?
a. Project S, since the NPVS > NPVL-
b. Both Projects S and L, since both projects have NPV's > 0.
c. Neither Project S nor L, since each project's NPV < 0.
d. Both Projects S and L, since both projects have IRR's > 0.
e. Project L, since the NPV > NPVS.
Transcribed Image Text:Project S requires an initial outlay at t = 0 of $18,000, and its expected cash flows would be $6,500 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $31,000, and its expected cash flows would be $9,550 per year for 5 years. If both projects have a WACC of 15%, which project would you recommend? a. Project S, since the NPVS > NPVL- b. Both Projects S and L, since both projects have NPV's > 0. c. Neither Project S nor L, since each project's NPV < 0. d. Both Projects S and L, since both projects have IRR's > 0. e. Project L, since the NPV > NPVS.
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