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1)A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S -$1,000 $890.52

1)A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:

0 1 2 3 4
Project S -$1,000 $890.52 $240 $15 $15
Project L -$1,000 $5 $240 $420 $749.33

The company's WACC is 9.5%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.

2)A firm with a WACC of 10% is considering the following mutually exclusive projects:

0 1 2 3 4 5
Project 1 -$250 $70 $70 $70 $175 $175
Project 2 -$450 $250 $250 $145 $145 $145

Which project would you recommend?

Select the correct answer.

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

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