Question

Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 8%.

	0		1		2		3		4
Project A	-1,150		690		350		240		290
Project B	-1,150		290		285		390		740

What is Project A's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.

$

What is Project B's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.

$

If the projects were independent, which project(s) would be accepted?

-Select-NeitherProject AProject BBoth projects A and BCorrect 1 of Item 3

If the projects were mutually exclusive, which project(s) would be accepted?

-Select-Neither Project AProject BBoth projects A and BCorrect 2 of Item 3

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Answer 1

Project A
Discount rate	0,08
Year	0	1	2	3	4
Cash flow stream	-1150	690	350	240	290
Discounting factor	1	1,08	1,1664	1,259712	1,360489
Discounted cash flows project	-1150	638,8889	300,0686	190,5197	213,15866
NPV = Sum of discounted cash flows
NPV Project A =	192,64
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
Project B
Discount rate	0,08
Year	0	1	2	3	4
Cash flow stream	-1150	290	285	390	740
Discounting factor	1	1,08	1,1664	1,259712	1,360489
Discounted cash flows project	-1150	268,5185	244,3416	309,5946	543,92209
NPV = Sum of discounted cash flows
NPV Project B =	216,38
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

Accept both projects if independent as both have positive NPV

Accept project B if mutually exclusive as it has higher NPV