Question

Quantitative Problemi 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. Depreciation, salvage values, met operating working capital requirements, and tax effects are linduded 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 7% Project A Project -1,190 -1,190 700 300 350 2 85 200 350 250 700 What is Project A'S NV? 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 of Project'A =PV of Costs -Initial Investment =700/(1+7%)+350/(1+7%)^2+200/(1+7%)^3+250/(1+7%)^4-1190 =123.89
NPV of Project'B =PV of Costs -Initial Investment =300/(1+7%)+285/(1+7%)^2+350/(1+7%)^3+700/(1+7%)^4-1190 =159.03

If projects were independent both projects should be accepted.

If projects were mutually exclusive Project B must be accepted.