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 ater- 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 WACCis 7% 4. Project A -950 650 385 220 270 Project B -950 250 320 370 720 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

- Fox H30 A 1 Solution :- B C Formula Bar E F G H I J K L M N Year Year 0 0 Project A -950 650 385 220 270 Cumm CF -950 300 85 305 575 Project B Cumm CF -950 -950 250 -700 320 380 370 -10 720 710 2 7 10 Payback Period = PBP is the period at which 1 and 2 years 1 + ( 300 / 385 ) 1.78 Years Payback Period = PBP is the period at which 3 and 4 years = 3 + ( 10 / 720) = 3.01 Years 13 14 Year Year 16 Project A -950 650 385 PVE @ 7% 1.000 0.935 0.873 0.816 0.763 PV -950.00 607.48 336.27 179.59 205.98 Cumm PV -950 342.52 -6.25 173.34 379.32 Project B PVF @ 7% -950 1.000 250 0.935 320 0.873 0.816 720 0.763 PV -950.00 233.64 279.50 302.03 549.28 Cumm PV -950 -716.36 436.85 -134.82 414.46 19 220 370 4 270 22 Dis Payback Period = 23 DPBP is the period at which 2 and 3 years 2 + ( 6.25 / 179.59) 2.03 Years Dis Payback Period =DPBP is the period at which 3 and 4 years = 3 + ( 134.82 / 549.28 ) = 3.25 Years 25 26

(a) Project A Payback Period = 1.78 Years

(b) Project A Discounted Payback Period = 2.03 Years

(C) Project B Payback Period = 3.01 Years

(d) Project B Discounted Payback Period = 3.25 Years