Diane Harper, Vice President of Finance for BGN Industries, is reviewing material prepared by her staff prior to the board of directors meeting at which she must recommend one of four mutually exclusive options for a new product line. The summary information below indicates the initial investment required, the present value of cash inflows (excluding the initial investment) at BGN's hurdle rate of 16%, and the internal rate of return (IRR) for each of the four options.

If there are no capital rationing constraints, which option should Harper recommend?

a. Option X.

b. Option Y.

c. Option Z.

d. Option W.

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Option Investment Present Value of Cash Inflows at 16% IRR X. Y. $3,950,000 3,000,000 $3,800,000 15.5% 3,750,000 19.0% Z W 2,000,000 2,825,000 17.5% 800,000 1,100,000 18.0%