A. 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	-$500	$70	$70	$70	$220	$220
Project 2	-$700	$350	$350	$115	$115	$115

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.

B.

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	$888.86	$240	$5	$5
Project L	-$1,000	$0	$240	$420	$847.98

The company's WACC is 8.5%. 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.

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