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 10%.

Project A -1,040 670 300 230 280

Project B -1,040 270 235 380 730

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

A:

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

=670/1.1+300/1.1^2+230/1.1^3+280/1.1^4

=$1221.07

NPV=Present value of inflows-Present value of outflows

=$1221.07-$1040

=$181.07(Approx).

B:

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

=270/1.1+235/1.1^2+380/1.1^3+730/1.1^4

=$1223.77

NPV=Present value of inflows-Present value of outflows

=$1223.77-$1040

=$183.77(Approx).