Quantitative Problem: Bellinger Industries is considering two projects for inclu
ID: 2724433 • 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 B's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.
Explanation / Answer
PV = Cashflow/ (1+i)^n
where i = 10% and n is the number of period
Year Project A PV@10% Project B PV@10% 0 (910) (910.00) (910) (910.00) 1 660 600.00 260 236.36 2 315 260.33 250 206.61 3 260 195.34 410 308.04 4 310 211.73 760 519.09 NPV 357.41 360.10