A firm with a WACC of 10% is considering the following mutually exclusive projects: 0 1 2 3 4 5 Project 1 -$250 $55 $55 $55 $190 $190 Project 2 -$650 $300 $300 $40 $40 $40 Which...

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Finance

A firm with a WACC of 10% is considering the following mutuallyexclusive projects:
0 1 2 3 4 5
Project 1 -$250 $55 $55 $55 $190 $190
Project 2 -$650 $300 $300 $40 $40 $40
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. Both Projects 1 and 2, since both projects have NPV's >0.
e. Project 1, since the NPV₁ >NPV₂.

Answer & Explanation Solved by verified expert

3.7 Ratings (343 Votes)

Project 1 Net present value is solved using a financial calculator The steps to solve on the financial calculator Press the CF button CF0 250 It is entered with a negative sign since it is a cash outflow Cash flow for all the years should be entered Press See Answer

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A firm with a WACC of 10% is considering the following mutuallyexclusive projects:012345Project 1-$250$55$55$55$190$190Project 2-$650$300$300$40$40$40Which 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. Both Projects 1 and 2, since both projects have NPV's >0.e. Project 1, since the NPV1 >NPV2.

Project 1	-$250	$55	$55	$55	$190	$190
Project 2	-$650	$300	$300	$40	$40	$40