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CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4

CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS

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

0 1 2 3 4 5
Project 1 -$200 $80 $80 $80 $210 $210
Project 2 -$500 $200 $200 $45 $45 $45

Which project would you recommend?

Select the correct answer.

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

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