Question

# Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you...

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 7%.

 0 1 2 3 4 Project A -1,130 680 335 240 290 Project B -1,130 280 270 390 740 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.

NPV = Total Present value of Cash inflows - Initial investment

In case of unequal cash flows, their present value is computed as -

Present value of a cash flow = Cash flow x PVIF (rate, year)

where, PVIF = Present value interest factor of \$1 = 1 / (1 + r)nr being the cost of capital or discount rate and n being the year for which it is calculated

for example PVIF @ 10% for year 1 = 1 / (1 + 0.1)1 = 0.90909090909

Project A

 Year Cash Flows PVIF @7% Present value 0 (-)1130 1 (-)1130 1 680 0.93457943925 635.51 2 335 0.87343872827 292.60 3 240 0.81629787688 195.92 4 290 0.76289521203 221.24 NPV 215.27

Project B

 Year Cash Flows PVIF @7% Present value 0 (-)1130 1 (-)1130 1 280 0.93457943925 261.68 2 240 0.87343872827 209.63 3 390 0.81629787688 318.36 4 740 0.76289521203 564.54 NPV 224.21

Let me know in case of any queries.