Bellinger Industries is considering two projects for inclusion in its capital bu

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 10%.

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?

0 1 2 3 4 Project A -1,050 670 400 290 340 Project B -1,050 270 335 440 790

Explanation / Answer

NPV is the present value of the cashflows at the WACC of 10%

NPV A = -1050 +670/1.1 + 400/1.1^2 + 290/1.1^3 + 340/1.1^4

=258.56

NPV = Similaarily will be calculated and would come out to be 244.08

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