Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been...

Free

60.1K

Verified Solution

Question

Finance

Bellinger Industries is considering two projects for inclusionin its capital budget, and you have been asked to do the analysis.Both projects' after-tax cash flows are shown on the time linebelow. Depreciation, salvage values, net operating working capitalrequirements, and tax effects are all included in these cash flows.Both projects have 4-year lives, and they have risk characteristicssimilar to the firm's average project. Bellinger's WACC is 12%.
0 1 2 3 4 Project A -900 700 425 290 340 Project B -900 300 360440 790
A.) What is Project A's payback? Do not round intermediatecalculations. Round your answer to four decimal places. years
B.) What is Project A's discounted payback? Do not roundintermediate calculations. Round your answer to four decimalplaces. years
C.) What is Project B's payback? Do not round intermediatecalculations. Round your answer to four decimal places. years
D.) What is Project B's discounted payback? Do not roundintermediate calculations. Round your answer to four decimalplaces. years

Answer & Explanation Solved by verified expert

4.2 Ratings (795 Votes)

Project A
Year	Cash flows	Cumulative Cash flows
0	-900	-900
1	700	-200
2	425	225
3	290	515
4	340	855
Payback period = 1+200/425 = 1.4706 years


Project A
Year	Cash flows	Discount rate	Discounted cash flows	Cumulative Discounted cash flows
0	-900	1	-900	-900
1	700	0.892857143	625	-275
2	425	0.797193878	338.807398	63.80739796
3	290	0.711780248	206.4162719	270.2236698
4	340	0.635518078	216.0761467	486.2998165
Discounted payback period = 1+ 275/338.81 = 1.8117 years

Project B
Year	Cash flows	Cumulative Cash flows
0	-900	-900
1	300	-600
2	360	-240
3	440	200
4	790	990
Payback period = 2+240/440 = 2.5455 years


Project B
Year	Cash flows	Discount rate	Discounted cash flows	Cumulative Discounted cash flows
0	-900	1	-900	-900
1	300	0.892857143	267.8571429	-632.1428571
2	360	0.797193878	286.9897959	-345.1530612
3	440	0.711780248	313.183309	-31.96975219
4	790	0.635518078	502.0592819	470.0895298
Discounted payback period = 3+ 31.97/502.06 = 3.0637 years

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Bellinger Industries is considering two projects for inclusionin its capital budget, and you have been asked to do the analysis.Both projects' after-tax cash flows are shown on the time linebelow. Depreciation, salvage values, net operating working capitalrequirements, and tax effects are all included in these cash flows.Both projects have 4-year lives, and they have risk characteristicssimilar to the firm's average project. Bellinger's WACC is 12%.0 1 2 3 4 Project A -900 700 425 290 340 Project B -900 300 360440 790A.) What is Project A's payback? Do not round intermediatecalculations. Round your answer to four decimal places. yearsB.) What is Project A's discounted payback? Do not roundintermediate calculations. Round your answer to four decimalplaces. yearsC.) What is Project B's payback? Do not round intermediatecalculations. Round your answer to four decimal places. yearsD.) What is Project B's discounted payback? Do not roundintermediate calculations. Round your answer to four decimalplaces. years