Quantitative Problem: Bellinger Industries is considering two projects for inclu
ID: 2761910 • 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 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.
$
Explanation / Answer
SOLUTION :
PROJECT A
Year
CASH FLOW
DICOUNT FACTOR @8%
PRESENT VALUE
0
-1120
0.925925926
- 1,037.04
1
620
0.85733882
531.55
2
330
0.793832241
261.96
3
210
0.735029853
154.36
4
260
0.680583197
176.95
NPV
88
PROJECT B
Year
CASH FLOW
DICOUNT FACTOR @8%
PRESENT VALUE
0
-1120
0.925925926
- 1,037.04
1
220
0.85733882
188.61
2
265
0.793832241
210.37
3
360
0.735029853
264.61
4
710
0.680583197
483.21
NPV
110
PROJECT A
Year
CASH FLOW
DICOUNT FACTOR @8%
PRESENT VALUE
0
-1120
0.925925926
- 1,037.04
1
620
0.85733882
531.55
2
330
0.793832241
261.96
3
210
0.735029853
154.36
4
260
0.680583197
176.95
NPV
88
PROJECT B
Year
CASH FLOW
DICOUNT FACTOR @8%
PRESENT VALUE
0
-1120
0.925925926
- 1,037.04
1
220
0.85733882
188.61
2
265
0.793832241
210.37
3
360
0.735029853
264.61
4
710
0.680583197
483.21
NPV
110