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 11%. Project A 900 600 Project B-900 360 260 310 200 295 410 760 What is Project A's payback? Round your answer to four decimal places. Do not round your intermediate calculations. years What is Project A's discounted payback? Round your answer to four decimal places. Do not round your intermediate calculations. years What is Project B's payback? Round your answer to four decimal places. Do not round your intermediate calculations. years What is Project B's discounted payback? Round your answer to four decimal places. Do not round your intermediate calculations years

bp 5

Answer 1

Payback	Project A		Project B
Time	Amount	Cumulative	Amount	Cumulative
-	(900.00)	(900.00)	(900.00)	(900.00)
1.00	600.00	(300.00)	200.00	(700.00)
2.00	360.00	60.00	295.00	(405.00)
3.00	260.00	320.00	410.00	5.00
4.00	310.00	630.00	760.00	765.00
Payback Period		1 + 300/360		2 + 405/410
Payback Period		1 + .83 Years		2 + .99 Years
Payback Period		1.83 Years		2.99 Years
Discounted PBP		Project A			Project B
Time	PVf at 11%	Amount	PV	Cumulative	Amount	PV	Cumulative
-	1.0000	(900.0000)	(900.00)	(900.00)	(900.00)	(900.00)	(900.00)
1.00	0.9009	600.0000	540.54	(359.46)	200.00	180.18	(719.82)
2.00	0.8116	360.0000	292.18	(67.28)	295.00	239.43	(480.39)
3.00	0.7312	260.0000	190.11	122.83	410.00	299.79	(180.60)
4.00	0.6587	310.0000	204.21	327.04	760.00	500.64	320.03
Discounted Payback period			2 + 67.28/190.11			3 + 180.60/500.64
Discounted Payback period			2.35 Years			3.36 Years