Capital budgeting criteria: mutually exclusive projects
Project S costs $10,000 and its expected cash flows would be $5,000 per year for 5 years. Mutually exclusive Project L costs $48,000 and its expected cash flows would be $10,700 per year for 5 years. If both projects have a WACC of 15%, which project would you recommend?
I. Project L, since the NPVL > NPVS.
II. Both Projects S and L, since both projects have IRR's > 0.
III. Project S, since the NPVS > NPVL.
IV. Both Projects S and L, since both projects have NPV's > 0.
V. Neither S or L, since each project's NPV < 0.