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 9%.

	0		1		2		3		4
Project A	-1,160		650		375		290		340
Project B	-1,160		250		310		440		790

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- Neither, Project A, Project B, Both projects A and B

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

-Select- Neither, Project A, Project B, Both projects A and B

Answer 1

Project A
Discount rate	0.09
Year	0	1	2	3	4
Cash flow stream	-1160	650	375	290	340
Discounting factor	1	1.09	1.1881	1.295029	1.4115816
Discounted cash flows project	-1160	596.3303	315.63	223.9332	240.86457
NPV = Sum of discounted cash flows
NPV Project A =	216.76
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
Project B
Discount rate	0.09
Year	0	1	2	3	4
Cash flow stream	-1160	250	310	440	790
Discounting factor	1	1.09	1.1881	1.295029	1.4115816
Discounted cash flows project	-1160	229.3578	260.9208	339.7607	559.65592
NPV = Sum of discounted cash flows
NPV Project B =	229.7
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

Accept both if independent as both are positive

Accept B in case of mutually exclusive as it has higher NPV