#16

Project S requires an initial outlay at t = 0 of $14,000, 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 $42,500, and its expected cash flows would be $8,350 per year for 5 years. If both projects have a WACC of 12%, which project would you recommend?

Select the correct answer.

a. Project L, since the NPVL > NPVS.

b. Both Projects S and L, since both projects have IRR's > 0.

c. Neither Project S nor L, since each project's NPV < 0.

d. Both Projects S and L, since both projects have NPV's > 0.

e. Project S, since the NPVS > NPVL.