Quantitative Problem: Bellinger Industries is considering two projects for inclu
ID: 2724422 • Letter: Q
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 10%.
0 1 2 3 4
Project A -910 660 315 260 310
Project B -910 260 250 410 760
What is Project A's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.
Explanation / Answer
NPV is the sum of present value of cash flows.
Year
Cash flow
PV factor 10%
PV
0
-910
1.0000
-910.00
1
660
0.9091
600.00
2
315
0.8264
260.33
3
260
0.7513
195.34
4
310
0.6830
211.73
NPV
357.41
Therefore, NPV would be 357.41.
Year
Cash flow
PV factor 10%
PV
0
-910
1.0000
-910.00
1
660
0.9091
600.00
2
315
0.8264
260.33
3
260
0.7513
195.34
4
310
0.6830
211.73
NPV
357.41