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Homework answers / question archive / Project costs $13,000 and its expected cash flows would be $4,500 per year for 5 years

Project costs $13,000 and its expected cash flows would be $4,500 per year for 5 years

Finance

Project costs $13,000 and its expected cash flows would be $4,500 per year for 5 years. Mutually exclusive Project L costs $29,500 and its expected cash flows would be $12,600 per year for 5 years. If both projects have a WACC of 16%, which project would you recommend? Select the correct answer a. Both Projects Sand, since both projects have NPV's > 0 b. Both Projects 5 and L. since both projects have IRR'S > 0. O Project L since the NPV > NPVS d. Neither Project Snor, since each project's NPV NPV

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        Present value  
Year Project S Project L PVIF @ 16% Project S Project L  
0 -13000 -29500 1    (13,000.00)    (29,500.00)  
1 4500 12600 0.862069        3,879.31      10,862.07  
2 4500 12600 0.743163        3,344.23        9,363.85  
3 4500 12600 0.640658        2,882.96        8,072.29  
4 4500 12600 0.552291        2,485.31        6,958.87  
5 4500 12600 0.476113        2,142.51        5,999.02  
NPV=              1,734.32      11,756.10  
             
             
Ans = option c)          
Project L since the NPVL>NPVS

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