eBook Problem Walk-Through

Project L requires an initial outlay at t = 0 of $65,000, its expected cash inflows are $15,000 per year for 9 years, and its WACC is 11%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.

Project L requires an initial outlay at t = 0 of $57,000, its expected cash inflows are $9,000 per year for 7 years, and its WACC is 11%. What is the project's payback? Round your answer to two decimal places.

Project S requires an initial outlay at t = 0 of $15,000, and its expected cash flows would be $5,000 per year for 5 years. Mutually exclusive Project L requires an initial outlay at t = 0 of $47,500, and its expected cash flows would be $12,050 per year for 5 years. If both projects have a WACC of 14%, which project would you recommend?

Select the correct answer.

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

b. Project S, since the NPVS > NPVL.

c. Project L, since the NPVL > NPVS.

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

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