Quantitative Problem: Bellinger Industries is considering two projects for inclu
ID: 2739434 • 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 9%.
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.
$
If the projects were independent, which project(s) would be accepted?
If the projects were mutually exclusive, which project(s) would be accepted?
Explanation / Answer
Calculation of the Net Present Value NPV = Present Value of Cash Inflows- Cash Outflows Project A NPV = 600/(1.09)+400/(1.09)^2+230/(1.09)^3+280/(1.09)^4-900 600*.917+400*.842+230*.772+280*.708-900 550.45+336.67+177.60+198.36-900 NPV = $363.09 Project B NPV = 200/(1.09)+335/(1.09)^2+380/(1.09)^3+730/(1.09)^4-900 200*.917+335*.841+380*.772+730*.708-900 183.48+281.96+293.42+517.15-900 $376.03 The Project B is having higher Net Present Value, Project B will be preferred