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 timeline 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 8%.

	0		1		2		3		4
Project A	-1,140		620		390		210		260
Project B	-1,140		220		325		360		710

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

$  

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

$  

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?

Please show your work so I will know how to work the problem!!

Answer 1

NPV = -initial investment + PV of future cash flows

Present value = Future value/(1+i)^n

i = interest rate per period

n= number of periods

=>

NPV of A = -1140 + 620/1.08 + 390/1.08^2 + 210/1.08^3 + 260/1.08^4

= 126.25

NPV of B = -1140 + 220/1.08 + 325/1.08^2 + 360/1.08^3 + 710/1.08^4

= 149.99

Both projects, Since NPV of A and B are positive

Project B , when mutually exclusive, since it has higher NPV