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 Project B -1,250 -1,250 700 280 370 315 200 395 310 750 What is Project Delta's IRR? Do not round Intermediate calculations. Round your answer to two decimal places. % What is the significance of this IRR? after this point when mutually exclusive projects are considred there is no conflict in project acceptance between the NPV and It is the crossover rate IRR approaches. Review the graphs below. Select the graph that correctly represents the correct NPV profile for Projects A and B by using the following drop down menu. -Select-

Answer 1

Project A Year CF PV@ 10% PV of CF IRR PV of Cash Flows Initial Investment 0 -1250 -1250 700 0.909 636.3 0.826 2 370 305.62 200 150.2 3 0.751 310 4 0.683 211.73 NPV 53.85 2% IRR Project B PV@ 10% PV of CF Hence Project Delta IRR 2% Year CF 0 -1250 1 -1250 280 254,52 1 0.909 2 315 0.826 260.19 395 0.751 296.645 4 750 0.683 512.25 NPV 73.605 IRR 2%