Question

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%.

	0		1		2		3		4
Project A	-1,160		640		395		240		290
Project B	-1,160		240		330		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.

$

Answer 1

Year	Cashflow of A	Cashflow of B	Discounting factor @9%	PV of cashflow of A	PV of cashflow of B
0	-1160	-1160	1	-1160.0	-1160.0
1	640	240	0.917431193	587.2	220.2
2	395	330	0.841679993	332.5	277.8
3	240	390	0.77218348	185.3	301.2
4	290	740	0.708425211	205.4	524.2
			NPV	150.4	163.3
We know,
NPV= Present value of future cashflows from project discounted at the required rate of return
NPV of Project A= 150.4	(rounded off to nearest cent)
NPV of Project B= 163.3	(rounded off to nearest cent)