9) A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4 5 Project 1 -$200 $70 $70 $70 $165 $165 Project 2 -$550 $300 $300 $130 $130 $130 Which...

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Finance

9)
A firm with a WACC of 10% is considering the following mutuallyexclusive projects:
0 1 2 3 4 5
Project 1 -$200 $70 $70 $70 $165 $165
Project 2 -$550 $300 $300 $130 $130 $130
Which project would you recommend?
Select the correct answer.
a. Neither Project 1 nor 2, since each project's NPV <0.
b. Project 2, since the NPV₂ >NPV₁.
c. Both Projects 1 and 2, since both projects have IRR's >0.
d. Project 1, since the NPV₁ >NPV₂.
e. Both Projects 1 and 2, since both projects have NPV's >0.

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Project 1Discount rate10000Year012345Cash flow stream200707070165165Discounting factor100011001210133114641611Discounted cash flows project200000636365785152592112697102452NPV Sum of discounted cash flowsNPV Project 1 18923WhereDiscounting factor 1 discount rateCorresponding period in See Answer

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Transcribed Image Text

9)A firm with a WACC of 10% is considering the following mutuallyexclusive projects:012345Project 1-$200$70$70$70$165$165Project 2-$550$300$300$130$130$130Which project would you recommend?Select the correct answer.a. Neither Project 1 nor 2, since each project's NPV <0.b. Project 2, since the NPV2 >NPV1.c. Both Projects 1 and 2, since both projects have IRR's >0.d. Project 1, since the NPV1 >NPV2.e. Both Projects 1 and 2, since both projects have NPV's >0.

Project 1	-$200	$70	$70	$70	$165	$165
Project 2	-$550	$300	$300	$130	$130	$130