Question: Project S requires an initial outlay at t = 0 of $16,000, and its expected cash flows would be $6,000 per year for 5 years.

Project S requires an initial outlay at t = 0 of $16,000, 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 $41,500, and its expected cash flows would be $13,950 per year for 5 years. If both projects have a WACC of 14%, which project would you recommend?

Select the correct answer.

a. Project L, because the NPV_L > NPV_S.

b. Both Projects S and L, because both projects have NPV's > 0.

c. Neither Project S nor L, because each project's NPV < 0.

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

e. Project S, because the NPV_S > NPV_L.

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