9. Problem 11.10 (Capital Budgeting Criteria: Mutually Exclusive Projects)

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

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1

2

3

4

5

Project 1	-$300	$65	$65	$65	$230	$230
Project 2	-$550	$200	$200	$135	$135	$135

Which project would you recommend?

Select the correct answer.

a. Neither Project 1 nor 2, since each project's NPV < 0.

b. Both Projects 1 and 2, since both projects have IRR's > 0.

c. Both Projects 1 and 2, since both projects have NPV's > 0.

d. Project 2, since the NPV2 > NPV1.

e. Project 1, since the NPV1 > NPV2.