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

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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 9%.

01234
Project A-1,300650385280330
Project B-1,300250320430780

What is Project A's MIRR? Do not round intermediatecalculations. Round your answer to two decimal places.

%

What is Project B's MIRR? Do not round intermediatecalculations. Round your answer to two decimal places.

%

Answer & Explanation Solved by verified expert
3.6 Ratings (577 Votes)
Project A Combination approach All negative cash flows are discounted back to the present and all positive cash flows are compounded out to the end of the projects life Thus year 4 modified cash flow84177457423052330 193439 Thus year 0 modified cash flow1300 1300 Discount rate 009 Year 0 1 2 3 4 Cash flow stream 1300 650 385 280 330 Discount factor 1 109 11881 1295029 14115816 Compound    See Answer
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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 9%.01234Project A-1,300650385280330Project B-1,300250320430780What is Project A's MIRR? Do not round intermediatecalculations. Round your answer to two decimal places.%What is Project B's MIRR? Do not round intermediatecalculations. Round your answer to two decimal places.%

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