Question

Quantitative Problem: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to de 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%. 1. Project A -1,100 600 360 270 290 Project B 1,100 200 295 420 740 What is Project A's IRR? De not round intermediate calculations. Round your answer to two decimal places What is Project B's IRR De not round intermediate caloulations. Round your answer to two decimal places I the prejects were independent, which projectts) would be accepted according to the IRR method Sele Ir the propects were mutualy exclusive, which project(s) would be accepted according to the IRR methodr Seet Could there be a confict with project accestance between the NPV and IRR approaches when projects are mutually exclusive lect The reason is Seect Reinvestment at the SelectEis the superior assumption, se when mutually exclusive projects are evaluated theSelect- approach should be used for the capital budgeting decision.

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Formulas File Home Insert Page Layout Data Review View Add-Ins E AutoSum - Cut - 11 Calibri Wrap Text: General A Copy - E Fill- B I U E E Sort & Find & Paste +.0 .00 Conditional Format Cell Insert Delete Format Merge & Center - .00 .0 Format Painter Clear Filter Select Formatting - as Table - Styles Styles Clipboard Font Alignment Number Cells Editing fe AFR21 AFS AFM AFR AFI AFJ AFK AFL AFN AFO AFP AFQ AFT AFU AFV AFW AFX AFY project 2 A B YEAR CFAT CFAT 4 -1100 -1100 5 630 200 360 295 3 270 420 4 290 740 14.86% [=IRR(AFN4:AFN8)] 18.35% 10 IRR [=IRR(AFM4:AFM8)] 11 12 PROJECT A'S IRR = 18.35% 13 14.86% PROJECT B'S IRR = 14 15 IF PROJECTS ARE INDEPENDENT 16 17 SELELCT BOTH THE PROJECTS A AND B AS IRR > WACC 18 IF PROJECTS ARE MUTUALLY EXCLUSIVE 19 AS IT HAS HIGHER IRR 20 SELECT PROJECT A 21 REPLACEMENT S EAC MACRS RELEVANT HPR GMAM NPV OP TION TO WAIT invest, EAA STEIN indiffEPS EBIT LEASE MI-np-ir BETA LEVERED REPLACEMENT BOND SLM HO U 120% (+) Rea ferences: P306 07:30 (O 40 ENG 6. ----- 15-12-2019

projects (Autosaved) (Autosaved) (Autosaved) - Microsoft Excel (Product Activation Failed) Formulas File Home Insert Page Layout Data Review View Add-Ins E AutoSum - Cut EWrap Text Calibri -11 General A Copy - E Fill- в IU* E E Sort & Find & Paste +.0 .00 Conditional Format Cell Insert Delete Format Merge & Center .00 .0 Format Painter Clear Filter Select Formatting - as Table - Styles Styles Clipboard Font Alignment Number Cells Editing fe AFL36 AFJ AFI AFK AFL AFM AFN AFO AFP AFQ AFR AFS AFT AFU AFV AFW AFX AFY 18 IF PROJECTS ARE MUTUALLY EXCLUSIVE 19 SELECT PROJECT A AS IT HAS HIGHER IRR 21 22 YES WHEN PROJECTS ARE MUTUALLY EXCLUSIVE, THERE IS A 23 CONFLICT BETWEEN IRR AND NPV 24 NPV and IRR approaches use different reinvestment rate assumptions and 25 so there can be a conflict in project acceptance when mutually exclusive projects are considered. 26 27 Reinvestment at the WACC is the superior assumption, 28 so when mutually exclusive projects are evaluated the NPV approach should be used for the capital budgeting decision. 29 30 31 32 33 34 35 36 37 REPLACEMENT S HPR GMAM RELEVANT REPLACEMENT OPTION TO WAIT NPV invest, EAA STEIN indiffEPS EBIT LEASE МI-пр-ir EAC MACRS BETA LEVERED BOND SLM EO H 120% Rea ferences: P306 07:31 (O 40 ENG 6. ----- 15-12-2019