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 9%. 0 1 3 Project A -1,000 650 385 220 270 Project B 1,000 250 320 370 720 What is Project A's payback? Do not round intermediate calculations. Round your answer to four decimal places. years What is Project A's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places. years What is Project B's payback? Do not round intermediate calculations. Round your answer to four decimal places. years What is Project B's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places. years

Answer 1

(a) Project it you cash flow Cenulatus fue q ueu wal lenitalin (b) (axb) () 650 1650 110.9174 596.31596.31 385 280103500.8417/324.05 9.20.36 220 1255 0.7722169.88 1090.24 I 270 11.1.525 07084 191.27 1201.51 A 1+ E Payback It (1000 - 650) 305 0.9091 1.9091 years. Discounted Payback 27 ( 1000 - 920.36) 169.08 0.4688 2.4688 years.

Project B you cumulatu cash flow (9) 250 ou@gy IPV, (b) Traxb) I lumbatin 220 570 S70 0.4171 269 8.69 2 4 320 7 20 10.9174 229.35229.35 0.6417 269.34498.69 0.7722285.71784.4 0.7004 510.05|1284 48 370 940 720 1660 1660 0.700 41510.0511292 .40 Payback 3+ (1000 - 990) 720 - 3+ 0.0833 = 3.003 years. Discounted Payback 3+ (1000 - 784.4) 510.05 3+ 0.4227 - a 3.4227 years.