Question: Project S requires an initial outlay at t = 0 of $17,000, and its expected cash flows would be $6,500 per year for 5 years.

Project S requires an initial outlay at t = 0 of $17,000, 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 $45,500, and its expected cash flows would be $8,250 per year for 5 years. If both projects have a WACC of 16%, which project would you recommend?

Select the correct answer.

a. Project S, since the NPV_S > NPV_L.

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

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

d. Project L, since the NPV_L > NPV_S.

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

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