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10) Project S costs $19,000 and its expected cash flows would be $6,000 per year for 5...

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Finance

10)

Project S costs $19,000 and its expected cash flows would be$6,000 per year for 5 years. Mutually exclusive Project L costs$41,000 and its expected cash flows would be $8,550 per year for 5years. If both projects have a WACC of 12%, which project would yourecommend?

Select the correct answer.

a. Both Projects S and L, since both projects have IRR's >0.
b. Project L, since the NPVL >NPVS.
c. Project S, since the NPVS >NPVL.
d. Both Projects S and L, since both projects have NPV's >0.
e. Neither Project S nor L, since each project's NPV <0.

Answer & Explanation Solved by verified expert
3.9 Ratings (454 Votes)
Project SDiscount rate12000Year012345Cash flow stream1900060006000600060006000Discounting factor100011201254140515741762Discounted cash flows project1900000053571434783163427068138131083404561NPV Sum of discounted cash flowsNPV Project S 262866WhereDiscounting factor 1 discount rateCorresponding period    See Answer
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Transcribed Image Text

10)Project S costs $19,000 and its expected cash flows would be$6,000 per year for 5 years. Mutually exclusive Project L costs$41,000 and its expected cash flows would be $8,550 per year for 5years. If both projects have a WACC of 12%, which project would yourecommend?Select the correct answer.a. Both Projects S and L, since both projects have IRR's >0.b. Project L, since the NPVL >NPVS.c. Project S, since the NPVS >NPVL.d. Both Projects S and L, since both projects have NPV's >0.e. Neither Project S nor L, since each project's NPV <0.

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