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Capital budgeting criteria: mutually exclusive projects Project S costs $15,000 and its expected cash flows...

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Finance

Capital budgeting criteria: mutually exclusive projects

Project S costs $15,000 and its expected cash flows would be $5,500 per year for 5 years. Mutually exclusive Project L costs $40,500 and its expected cash flows would be $10,800 per year for 5 years. If both projects have a WACC of 15%, which project would you recommend?

Select the correct answer.

I. Both Projects S and L, since both projects have NPV's > 0.
II. Project L, since the NPVL > NPVS.
III. Both Projects S and L, since both projects have IRR's > 0.
IV. Project S, since the NPVS > NPVL.
V. Neither S or L, since each project's NPV < 0.

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