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 10%. 690 320 Project A Project B -1,100 -1,100 375 310 270 420 290 770 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 If the projects were mutually exclusive, which project(s) would be accepted? -Select-

Answer 1

NPV = NET PRESENT VALUE = present value of cash inflow- cash outflow

NPV of project A = $258.69
NPV of project B = $261.30

If they are independent projects, both of them must be accepted as the net present value for both the projects is positive.

If they are mutually exclusive projects then project B must be accepted as its net present value is greater than project A.

NPV o A= 3 690 320 (I-1O) I10) Cl-16)3 11014 W258.69 NPV B= 290 420 310 + 11ou Cl-I0 CI-10) CI10)3 CI-10)2 261-30