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nechtml?deploymentid48705223650916456761401195&SBN 97813054038028id 606371559esnapshotid-1403417 CENGAGE MINDTAP Q Search this cour Chapter 11 Blueprint Problems Capital Budgeting Decision Criteria: NPV NPV The net present value (NPV)method estimates how much a potential project will contribute to select best selection criterion. The Select the NPV, the more value the project adds; and added value means a Select price. In equation form, the NPV is defined as: NPV = CF,+ C + C +...+ CP and it is the stock CR is the expected cash flow in Period tris the project's risk adjusted cost of capital, and cash outflows are treated as negative cash flows. The NPV calculation assumes that cash inflows can be reinvested at the project's risk-adjusted Select When the firm is considering independent projects, if the project's NPV exceeds zero the firm should -Select the project. When the firm is considering mutually exdusive projects, the firm should accept the project with the Select NPV. 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 timeline below. Deprecation, 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 10% Microsoft OneDrive Project A Project B -980 980 670 270 330 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? If the projects were mutually exclusive, which project(s) would be accepted Check My World DOLL LORRAINE 7804 3067 TANA BOGB poud APRESS

Answer 1

A) Npv of project A

Using financial calculator to calculate Npv

Inputs: C0 = -980

C1 = 670 Frequency = 1

C2 = 395. Frequency = 1

C3 = 280. Frequency = 1

C4 = 330 Frequency = 1

I = 10%

NPV = Compute

We get, NPV = 391.30

B) NPV of project B

Using financial calculator to calculate Npv.

Inputs: C0 = -980

C1 = 270. Frequency = 1

C2 = 330. Frequency = 1

C3 = 430. Frequency = 1

C4 = 780. Frequency = 1

I = 10%

Npv = compute

We get, NPV = 394

C) If the projects are independent we should choose both the projects, as the Npv of the project is positive.

D) If the projects are mutually exclusive , we should choose project B , as it has higher Npv than project A.