CA 1 - CR Capital Budgeting Decision Criteria: NPV The net present value (NPV) method estimates how much a potential project will contribute to Select selection criterion. The Select the NPV, the more value the project adds; and added value means a Select stock price. In equation and it is the best form, the NPV is defined as: NPV = CF + CH + + OF *. + (-:-) CF is the expected net cash flow at Time t, is the project's risk-adjusted cost of capital, Nisits 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 film 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 incluston 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%. 1 1 Project A 360 290 340 Project B 960 240 295 What is Project A's NPV? Do not round Intermediate calculations. Round your answer to the nearest cent. 0 3 4 -960 640 440 790 5 What is Project B's NPV7 Do not round Intermediate calculations. Round your answer to the nearest cent. Quantitative Problem: Bellinger Industries is considering two projects for indusion 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%. 0 3 Project A -960 640 360 290 340 Project B -960 240 295 440 790 What is Project A's NPV? Do not round intermediate calculations, Round your answer to the nearest cent. $ What is Project B's NPU? Do not round intermediate calculations. Round your answer to the nearest cent. $ If the projects were independent, which project(s) would be accepted? -Select- would be accepted. If the projects were mutually exclusive, which project(s) would be accepted? would be accepted. -Select