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	-910		650		325		190		240
Project B	-910		250		260		340		690

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.

Answer 1

ANS PROJECT A: $ 297.72

PROJECT B: $ 321.46

Project A
Year	Project Cash Flows (i)	DF@ 8%	DF@ 8% (ii)	PV of Project ( (i) * (ii) )
0	-910	1	1	(910.00)
1	650	1/((1+8%)^1)	0.926	601.85
2	325	1/((1+8%)^2)	0.857	278.64
3	190	1/((1+8%)^3)	0.794	150.83
4	240	1/((1+8%)^4)	0.735	176.41
		NPV		297.72

Project B
Year	Project Cash Flows (i)	DF@ 8%	DF@ 8% (ii)	PV of Project ( (i) * (ii) )
0	-910	1	1	(910.00)
1	250	1/((1+8%)^1)	0.926	231.48
2	260	1/((1+8%)^2)	0.857	222.91
3	340	1/((1+8%)^3)	0.794	269.90
4	690	1/((1+8%)^4)	0.735	507.17
		NPV		321.46