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Capital Budgeting

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Project S
Costs = $15,000
Cash Flow = $4500 per year for 5 years
WACC = 14%

Mutually exclusive

Project L
Costs = $37,500
Cash Flow = $11,100 per year for 5 years
WACC = 14%

Which project should be selected?

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Solution Preview

One needs to calculate NPV for the two projects and then select the higher NPV project.

Use the following formula in Excel ...

Solution Summary

The solution goes into a great amount of detail regarding the question being asked. Step by step explanation is provided for each part of the question which makes it very easy to follow along for anyone with just a basic understanding of the concepts. Overall, an excellent response to the question being asked.