1. Project S requires an initial outlay at t = 0 of $15,000, and its expected cash flows would be $6,500 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $32,500, and its expected cash flows would be $8,350 per year for 5 years. If both projects have a WACC of 16%, which project would you recommend?

Select the correct answer.

a. Project L, since the NPVL > NPVS.

b. Neither Project S nor L, since each project's NPV < 0.

c. Both Projects S and L, since both projects have NPV's > 0.

d. Both Projects S and L, since both projects have IRR's > 0.

e. Project S, since the NPVS > NPVL.

2. A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:

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1

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3

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Project S	-$1,000	$885.10	$250	$5	$5
Project L	-$1,000	$0	$240	$380	$875.34

The company's WACC is 10.0%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.

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