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Project S requires an initial outlay at t = 0 of $13,000, and its expected cash flows would be $7,000 per year for 5 years.

Project S requires an initial outlay at t = 0 of $13,000, and its expected cash flows would be $7,000 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $35,000, and its expected cash flows would be $9,250 per year for 5 years. If both projects have a WACC of 12%, which project would you recommend?

Select the correct answer.

a. Neither Project S nor L, since each project's NPV < 0.
b. Both Projects S and L, since both projects have NPV's > 0.
c. Project S, since the NPVS > NPVL.
d. Project L, since the NPVL > NPVS.
e. Both Projects S and L, since both projects have IRR's > 0.

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