4. S. The net present value (NPV) method estimates how much a potential project will contribute to -Select- and it is the best selection criterion. The -Select-the NPV, the more value the project adds; and added value means a -Select-stock price. In equation form, the NPV is defined as: O 6. N 7. CF O CF, CY, CFN NPV = CF + + + ... + 2 1-6 (1+1) 8. o 9. . 10. CFt is the expected cash flow at Time t, r is the project's risk-adjusted cost of capital, and N is its life, and cash outflows are treated as negative cash flows. The NPV calculation assumes that cash inflows can be reinvested at the project's risk-adjusted -Select- When the firm is considering independent projects, if the project's NPV exceeds zero the firm should -Select the project. When the firm is considering mutually exclusive projects, the firm should accept the project with the -Select- NPV. 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 9%. 0 4 1 2 3 1 Project A -970 680 350 290 340 Project B -970 280 285 440 790 What is Project A's NPV? Do not round intermediate calculations. Round your answer to the nearest cent. $ What is Project B's NPV? Do not round intermediate calculations. Round your answer to the nearest cent. $ If the projects were independent, which project(s) would be accepted? -Select- If the projects were mutually exclusive, which project(s) would be accepted? X 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 2 3 4 Project A -970 680 350 290 340 Project B -970 280 285 440 790 What is Project A's NPV? Do not round intermediate calculations. Round your answer to the nearest cent. What is Project B's NPV? Do not round intermediate calculations. Round your answer to the nearest cent. $ If the projects were independent, which project(s) would be accepted? -Select- If the projects were mutually exclusive, which project(s) would be accepted? -Select- A-Z Check My Work (3 remaining) and it is the contribute tv-Select- busins ethics As; and adde shareholders' wealth employee benefits stock price. 4. S. and it is the The net present value (NPV) method estimates how much a potential project will contribute to -Select- best selection criterion. Th.Select the NPV, the more value the project adds; and added value means a -Select- v stock pric smaller In equation form, the NPV larger CF 6. 7. 13 SITY CS project will contribute to -Select- che more value the project adds; and added value means -Select higher and it is the stock price. lower CF CF2 CEN + CF rd ject's risk-adjusted cost of capital, and N is its life, and cash outflows are treated es that cash inflows can be reinvested at the project's risk-adjuste V -Select- if the project's NPV exceeds zero the firm should -Select-the the firm should accept the project with the -Select- neidering two nmiects for inclusion in its capital budget, and you have been asked VN WACO Fisk-adjusted cost of capital, and N is its life, and cash outflows are treated on assumes that cash inflows can be reinvested at the project's risk-adjusted -Select- ut projects, if the project's NPV exceeds zero the firm shoul V -Select the project. When e projects, the firm should accept the project with these NPV. stries is considering two projects for inclusion in its capital budget, and you have been asked accept reject dia ne project. When NPV. -Select- rm should accept the project with th -Select- lowest positive ng two projects for inclusion in its ca lowest negative e shown on the time line below. Depr highest positive highest negative u have been asked lues, net operating Lwale If the projects were independent, which project(s) would be accepted? -Select- Neither Project atually exclusive, which project(s) would be accepted? Project B Both projects A and B mory If the projects were mutually exclusive, which project(s) would be accepted? -Select- Neither Project A Project B Both projects A and B Check My W 0 Icon Key