Question

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 9%.

	0		1		2		3		4
Proj A	-1,190		650		345		280		330
ProjB	-1,190		250		280		430		780

What is Project A's NPV?

What is Project B's NPV?

Answer 1

NPV of Project A:

Year	0	1	2	3	4
Cash flows	-1190	650	345	280	330
PV of Cash flows	-1190	596.33	290.38	216.21	233.78
NPV	146.70

NPV of Project B:

Year	0	1	2	3	4
Cash flows	-1190	250	280	430	780
PV of Cash flows	-1190	229.36	235.67	332.04	552.57
NPV	159.64