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 $40,500, and its expected cash flows would be $12,100 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. Both Projects S and L, since both projects have IRR's > 0.

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

d. Project S, since the NPVS > NPVL.

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

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

0

1

2

3

4

Project S	-$1,000	$873.06	$250	$10	$10
Project L	-$1,000	$0	$250	$420	$822.83

The company's WACC is 9.0%. 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.

_______ %