Capital budgeting criteria: mutually exclusive projects

Project S costs $16,000 and its expected cash flows would be $4,000 per year for 5 years. Mutually exclusive Project L costs $45,500 and its expected cash flows would be $13,600 per year for 5 years. If both projects have a WACC of 12%, which project would you recommend?

Select the correct answer.

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

II. Neither S or L, since each project's NPV < 0.

III. Project S, since the NPVS > NPVL.

IV. Project L, since the NPVL > NPVS.

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