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

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Finance

Bellinger Industriesis 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 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 -1,110 790 350 250 300
Project B -1,110 390 285 400 750
What is Project A’sIRR? Do not round intermediate calculations. Round your answer totwo decimal places.
%
What is Project B'sIRR? Do not round intermediate calculations. Round your answer totwo decimal places.
%
part two
A firm is consideringtwo mutually exclusive projects, X and Y, with the following cashflows:
0 1 2 3 4
Project X -$1,000 $100 $320 $370 $700
Project Y -$1,000 $900 $100 $55 $50
The projects areequally risky, and their WACC is 11%. What is the MIRR of theproject that maximizes shareholder value? Do not round intermediatecalculations. Round your answer to two decimal places.
%

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4.4 Ratings (593 Votes)

Project A IRR is the rate at which NPV 0 IRR 0248006113 Year 0 1 2 3 4 Cash flow stream 1110 790 350 250 300 Discounting factor 1 1248006 1557519 1943794 24258662 Discounted cash flows project 1110 6330097 2247163 1286145 12366716 NPV Sum of discounted cash flows NPV Project A 0007688669 Where Discounting factor 1 IRRCorresponding period in years Discounted Cashflow Cash flow streamdiscounting factor IRR 2480 Project B IRR is the rate at which NPV 0 IRR 0206822808 Year 0 1 2 3 4 Cash flow stream 1100 390 285 400 750 Discounting factor 1 1206823 See Answer

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Transcribed Image Text

Bellinger Industriesis 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 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%.01234Project A-1,110790350250300Project B-1,110390285400750What is Project A’sIRR? Do not round intermediate calculations. Round your answer totwo decimal places.%What is Project B'sIRR? Do not round intermediate calculations. Round your answer totwo decimal places.%part twoA firm is consideringtwo mutually exclusive projects, X and Y, with the following cashflows:01234Project X-$1,000$100$320$370$700Project Y-$1,000$900$100$55$50The projects areequally risky, and their WACC is 11%. What is the MIRR of theproject that maximizes shareholder value? Do not round intermediatecalculations. Round your answer to two decimal places.%

Project X	-$1,000	$100	$320	$370	$700
Project Y	-$1,000	$900	$100	$55	$50