Quantitative Problem: Bellinger Industries is considering two projects for inclu

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 8%.

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.

$  

0 1 2 3 4 Project A -940 680 365 190 240 Project B -940 280 300 340 690

Explanation / Answer

Calculation of Net Present value of B

329.74

Calculation of Net Present value of A

353.49

As the project B has more NPV than Project A, Project B should be preferred.

Year 0 (940) 1 (940) 1 680 .926 629.68 2 365 .857 312.80 3 190 .794 150.86 4 240 .735 176.4 Net Present value

329.74

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