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 al ncluded 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 996. 650 250 320 255 270 420 390 Project A 1,000 Project B 1,000 840 What Is Project A's IRR? Do not round intermediate calculations. Round your answer to two decimal places. Show All Feedback What is Project B's IRR? Do not round intermediate calculations. Round your answer to two decimal places. Show All Feedback If the projects were independent, which project(s) would be accepted according to the IRR method? Select- If the projects were mutually exclusive, which project(s) would be accepted according to the IRR method? -Select-

Answer 1

1.Project A

Internal rate of return is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$1,000. It is entered with a negative sign since it is a cash outflow.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of the project is 26.47%.

Project B

Internal rate of return is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$1,000. It is entered with a negative sign since it is a cash outflow.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of the project is 21.42%.

2.If the projects are independent, both the projects can be accepted since the internal rate of return of the projects are higher than the weighted average cost of capital of 9%.

3.If the projects are mutually exclusive, project A is accepted since it has the higher internal rate of return.

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