0 1 ring the following mutually exclusive projects: 2 Project 1 -$250 $75 Project 2 -$400 $350 Which project would you recommend? 3 $75 $75 $350 $120 4 5 $165 $165 $120 $120 Select the correct answer. Oa. Neither Project 1 nor 2, since each project's NPV < 0. Ob. Both Projects 1 and 2, since both projects have NPV's > 0. Oc. Project 2, since the NPV2 > NPV1. Od. Both Projects 1 and 2, since both projects have IRR's > 0. Oe. Project 1, since the NPV₁ > NPV2.
0 1 ring the following mutually exclusive projects: 2 Project 1 -$250 $75 Project 2 -$400 $350 Which project would you recommend? 3 $75 $75 $350 $120 4 5 $165 $165 $120 $120 Select the correct answer. Oa. Neither Project 1 nor 2, since each project's NPV < 0. Ob. Both Projects 1 and 2, since both projects have NPV's > 0. Oc. Project 2, since the NPV2 > NPV1. Od. Both Projects 1 and 2, since both projects have IRR's > 0. Oe. Project 1, since the NPV₁ > NPV2.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A firm with a WACC of 10% is considering the following mutually exclusive projects:
| Year | Project 1 | Project 2 |
|------|-----------|-----------|
| 0 | -$250 | -$400 |
| 1 | $75 | $350 |
| 2 | $75 | $350 |
| 3 | $75 | $120 |
| 4 | $165 | $120 |
| 5 | $165 | $120 |
**Which project would you recommend?**
**Select the correct answer:**
- a. Neither Project 1 nor 2, since each project's NPV < 0.
- b. Both Projects 1 and 2, since both projects have NPV's > 0.
- c. Project 2, since the NPV₂ > NPV₁.
- d. Both Projects 1 and 2, since both projects have IRR's > 0.
- e. Project 1, since the NPV₁ > NPV₂.
This choice involves evaluating the Net Present Value (NPV) and the Internal Rate of Return (IRR) for each project, taking into account the Weighted Average Cost of Capital (WACC) of 10%.
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