Capital budgeting criteria: mutually exclusive projects
Project S costs $11,000 and its expected cash flows would be $4,000 per year for 5 years. Mutually exclusive Project L costs $32,000 and its expected cash flows would be $14,700 per year for 5 years. If both projects have a WACC of 15%, which project would you recommend?
Select the correct answer.
I. Neither S or L, since each project's NPV < 0.
II. Project L, since the NPVL > NPVS.
III. Project S, since the NPVS > NPVL.
IV. Both Projects S and L, since both projects have IRR's > 0.
V. Both Projects S and L, since both projects have NPV's > 0.