3. Problem 11.11 (Capital Budgeting Criteria: Mutually Exclusive Projects)

Project S requires an initial outlay at t = 0 of $14,000, and its expected cash flows would be $6,000 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $31,000, and its expected cash flows would be $14,750 per year for 5 years. If both projects have a WACC of 15%, which project would you recommend? Select the correct answer. a. Neither Project Snor L, since each project's NPV 0. O c. Both Projects S and L, since both projects have NPV's > 0. d. Project L, since the NPVL > NPVS. Oe. Project S, since the NPVs > NPVL