1) Project L costs $59,206.43, its expected cash inflows are $12,000 per year for 10 years, and its WACC is 11%. What is the project's IRR? Round your answer to two decimal places.
2) Project L costs $45,000, its expected cash inflows are $8,000 per year for 6 years, and its WACC is 13%. What is the project's payback? Round your answer to two decimal places.
3) A firm with a WACC of 10% is considering the following mutually exclusive projects:
| Project 1 |
-$200 |
$60 |
$60 |
$60 |
$175 |
$175 |
| Project 2 |
-$450 |
$300 |
$300 |
$40 |
$40 |
$40 |
Which project would you recommend? Select the correct answer:
|
I. Both Projects 1 and 2, since both projects have NPV's > 0. |
|
|
|
II. Neither Project 1 nor 2, since each project's NPV < 0. |
|
|
|
III. Both Projects 1 and 2, since both projects have IRR's > 0. |
|
|
|
IV. Project 1, since the NPV1 > NPV2. |
|
|
|
V. Project 2, since the NPV2 > NPV1. |
|
|