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 7%.

	0		1		2		3		4
Project A	-1,130		680		335		240		290
Project B	-1,130		280		270		390		740

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

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

Please Help!Thank you!

Answer 1

1

Project A
Discount rate	0.07
Year	0	1	2	3	4
Cash flow stream	-1130	680	335	240	290
Discounting factor	1	1.07	1.1449	1.225043	1.310796
Discounted cash flows project	-1130	635.514	292.602	195.9115	221.23961
NPV = Sum of discounted cash flows
NPV Project A =	215.27
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
2
Project B
Discount rate	0.07
Year	0	1	2	3	4
Cash flow stream	-1130	280	270	390	740
Discounting factor	1	1.07	1.1449	1.225043	1.310796
Discounted cash flows project	-1130	261.6822	235.8285	318.3562	564.54246
NPV = Sum of discounted cash flows
NPV Project B =	250.41
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor