Quantitative Problem: Bellinger Industries is considering two projects for inclu
ID: 2782998 • 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%. 4 Project A -990 Project B 990 650 390 220 270 250 325 370 720 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? -Select- If the projects were mutually exclusive, which project(s) would be accepted? -Select-Explanation / Answer
Project A:
NPV = -990 + 650/1.08 + 390/1.08^2 + 220/1.08^3 + 270/1.08^4
NPV = 319.32
Project B:
NPV = -990 + 250/1.08 + 325/1.08^2 + 370/1.08^3 + 720/1.08^4
NPV = 343.06
If projects are independent, both projects will be selected as they their NPV is positive.
If projects are mutually exclusive, only one higher NPV will be opted. Project B is better than project A.