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 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.

If the projects were independent, which project(s) would be
accepted?

If the projects were mutually exclusive, which project(s) would
be accepted?

Answer #1

**A:**

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=680/1.07+335/1.07^2+240/1.07^3+290/1.07^4

=$1345.27

NPV=Present value of inflows-Present value of outflows

=1345.27-1130

**=$215.27(Approx)**

**B:**

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=280/1.07+270/1.07^2+390/1.07^3+740/1.07^4

=1380.41

NPV=Present value of inflows-Present value of outflows

=1380.41-1130

**=$250.41(Approx)**

**Hence if projects are independent**;**both
projects must be chosen** having positive NPV.

**Hence if projects were mutually exclusive,project B must
be chosen** having higher NPV.

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included in these cash flows. Both projects have 4-year lives, and
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Bellinger Industries is considering two projects for inclusion
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Both projects have 4-year lives, and they have risk characteristics
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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
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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%.
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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%. What
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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%.
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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
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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
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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%.
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