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

0

1

2

3

4

5

Project 1	-$200	$65	$65	$65	$175	$175
Project 2	-$550	$350	$350	$150	$150	$150

Which project would you recommend?

Select the correct answer.

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

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

c. Project 2, since the NPV2 > NPV1.

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

e. Project 1, since the NPV1 > NPV2.

Project S requires an initial outlay at t = 0 of $19,000, and its expected cash flows would be $6,000 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $37,000, and its expected cash flows would be $10,200 per year for 5 years. If both projects have a WACC of 12%, which project would you recommend?

Select the correct answer.

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

b. Project L, since the NPVL > NPVS.

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

d. Project S, since the NPVS > NPVL.

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