Question

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 7%.

	0		1		2		3		4
Project A	-1,100		670		400		190		240
Project B	-1,100		270		335		340		690

What is Project B's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

Project B
Discount rate	0.07
Year	0	1	2	3	4
Cash flow stream	-1100	270	335	340	690
Discounting factor	1	1.07	1.1449	1.225043	1.310796
Discounted cash flows project	-1100	252.3364	292.602	277.5413	526.3977
NPV = Sum of discounted cash flows
NPV Project B =	248.88
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor