eBookProject S costs $14,000 and its expected cash flows would be $6,500 per year for 5 years. Mutually exclusive Project L costs $30,000 and its expected cash flows would be $10,150 per year for 5years. If both projects have a WACC of 16%, which project would you recommend?Select the correct answer.Oa. Project L, since the NPVL > NPVS.Ob. Both Projects S and L, since both projects have NPV's > 0.Oc. Project S, since the NPVS > NPVL.Od. Both Projects S and L, since both projects have IRR's > 0.Oe. Neither Project S nor L, since each project's NPV < 0.

S: Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate =6500[1-(1.16)^-5]/0.16…

Answered: ears. If both projects have a WACC of…

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ears. If both projects have a WACC of 16%, which project would you recommend?

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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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

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Project S costs $14,000 and its expected cash flows would be $6,500 per year for 5 years. Mutually exclusive Project L costs $30,000 and its expected cash flows would be $10,150 per year for 5
years. If both projects have a WACC of 16%, which project would you recommend?
Select the correct answer.
Oa. Project L, since the NPVL > NPVS.
Ob. Both Projects S and L, since both projects have NPV's > 0.
Oc. Project S, since the NPVS > NPVL.
Od. Both Projects S and L, since both projects have IRR's > 0.
Oe. Neither Project S nor L, since each project's NPV < 0.

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