CAPITAL BUDGETING CRITERIA: MUTUALLY EXCLUSIVE PROJECTS
A firm with a WACC of 10% is considering the following mutually exclusive projects:
0 1 2 3 4 5
Project 1 - $500 $70 $70 $70 $160 $160
Project 2 - $600 $300 $300 $55 $55 $55
Which project would you recommend?
a. Both Projects 1 and 2, since both projects have NPV's > 0.
b. Project 1, since the NPV1 > NPV2.
c. Project 2, since the NPV2 > NPV1.
d. Neither Project 1 nor 2, since each project's NPV < 0.
e. Both Projects 1 and 2, since both projects have IRR's >0