Question

call U Lise Blueprint Problems Ch 11 Brigham 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%. 330 Project A Project B -1,200 -1,200 630 230 290 440 350 800 265 What is Project AS TRR? Do not round intermediate calculations. Round your answer to two decimal places What is Project B's IRR? Do not round intermediate calculations. Round your answer to two decimal places. If the projects were independent, which project(s) would be accepted according to the IRR method? If the projects were mutually exclusive, which project(s) would be accepted according to the IRR method? Could there be a conflict with project acceptance between the NPV and IRR approaches when projects are mutually exclusive? The reason is Select approach should be used for the the superior assumption, so when mutually exclusive projects and evaluated the Reinvestment at the chaudesta decision

Answer 1

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- 2x Σ AutoSum : A Fill Z Sort & Find & 2 Clear Filter Editing Select Cells EN AFO AFP AFQ AFR AFS AFT AFU AFV AFW AFX AFY - projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Calibri 11 AA = = = pt Wrap Text General Ea Copy Paste Format Painter B I U B- A Merge & Center - $ -% . Formatting as Table Styles Clipboard Font Alignment Number Styles AFU1 fx AFK AFL AFM BELLINGER project A B YEAR CEAT CEAT -1200 -1200 630 230 2 330 265 3 290 440 350 800 1 800 au wn IRR 14.44% 13.22% (=IRR(AFN4:AFN8)] (IRR(AFM4:AFM8)] 12 PROJECT A'S IRR = 14.44% PROJECT B'S IRR = 13.22% 13 14 15 16 IF PROJECTS ARE INDEPENDENT SELELCT BOTH THE PROJECTS A AND B 17 AS IRR > WACC 18 19 R N JE PROJECTS ARE MUTUALLY EXCLUSIVE IRRnpvbetaRATION PBP ARR invest, EAA MI-np-ir REPLACEMENT S ferences: NL296 HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT BOND OPTION TO WAITSTEIN IDI BO 130% 0 O + Rea . B 9 . * ENG 21-11-2019

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Data Review View Add-Ins File Home Insert Page Layout Formulas - 2x % Cut Σ AutoSum : A Calibri pt General AA = = = A Wrap Text Merge Merge & Center - Center B I U SF 4:0 .00 . Insert Delete Format 11 B- Font fax E Copy Paste Format Painter Clipboard AFU32 $ -% % Number Conditional Format Formatting as Table Styles Cell Styles Fill 2 Clear Sort & Find & Filter Select Editing Alignment Cells AFL AFM AFN AFO AFP AFQ AFR AFS AFT AFU AFV AFW AFX AFY : 15 16 17 18 IF PROJECTS ARE INDEPENDENT SELELCT BOTH THE PROJECTS A AND B AS IRR > WACC 19 IF PROJECTS ARE MUTUALLY EXCLUSIVE SELECT PROJECT A AS IT HAS HIGHER IRR 20 21 22 YES WHEN PROJECTS ARE MUTUALLY EXCLUSIVE, THERE IS A CONFLICT BETWEEN IRR AND NPV 23 24 25 NPV and IRR approaches use different reinvestment rate assumptions and so there can be a conflict in project acceptance when mutually exclusive projects are considered. 26 27 28 Reinvestment at the WACC is the superior assumption, so when mutually exclusive projects are evaluated the NPV approach should be used for the capital budgeting decision. 29 30 31 32 H invest, EAA MI-np-ir REPLACEMENT S HPR GMAM EAC MACRS NPV RELEVANT BETA LEVERED REPLACEMENT I RRnpvbeta RATION PBP ARR ferences: NL296 BOND OPTION TO WAITSTEIN II < BO 130% 0 0 Rea + . B 9 . * ENG 21-11-2019