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9) A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4 5 Project 1 -$200 $70 $70 $70 $165 $165 Project 2 -$550 $300 $300 $130 $130 $130 Which...

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Finance

9)

A firm with a WACC of 10% is considering the following mutuallyexclusive projects:

012345
Project 1-$200$70$70$70$165$165
Project 2-$550$300$300$130$130$130

Which project would you recommend?

Select the correct answer.

a. Neither Project 1 nor 2, since each project's NPV <0.
b. Project 2, since the NPV2 >NPV1.
c. Both Projects 1 and 2, since both projects have IRR's >0.
d. Project 1, since the NPV1 >NPV2.
e. Both Projects 1 and 2, since both projects have NPV's >0.

Answer & Explanation Solved by verified expert
3.7 Ratings (384 Votes)
Project 1Discount rate10000Year012345Cash flow stream200707070165165Discounting factor100011001210133114641611Discounted cash flows project200000636365785152592112697102452NPV Sum of discounted cash flowsNPV Project 1 18923WhereDiscounting factor 1 discount rateCorresponding period in    See Answer
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Transcribed Image Text

9)A firm with a WACC of 10% is considering the following mutuallyexclusive projects:012345Project 1-$200$70$70$70$165$165Project 2-$550$300$300$130$130$130Which project would you recommend?Select the correct answer.a. Neither Project 1 nor 2, since each project's NPV <0.b. Project 2, since the NPV2 >NPV1.c. Both Projects 1 and 2, since both projects have IRR's >0.d. Project 1, since the NPV1 >NPV2.e. Both Projects 1 and 2, since both projects have NPV's >0.

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