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

Free

50.1K

Verified Solution

Question

Finance

Quantitative Problem: Bellinger Industries isconsidering two projects for inclusion in its capital budget, andyou have been asked to do the analysis. Both projects' after-taxcash flows are shown on the time line below. Depreciation, salvagevalues, net operating working capital requirements, and tax effectsare all included in these cash flows. Both projects have 4-yearlives, and they have risk characteristics similar to the firm'saverage project. Bellinger's WACC is 10%.
0 1 2 3 4
Project A -950 650 410 210 260
Project B -950 250 345 360 710
What is Project A's payback? Round your answer to four decimalplaces. Do not round your intermediate calculations.
What is Project A's discounted payback? Round your answer tofour decimal places. Do not round your intermediatecalculations.

Answer & Explanation Solved by verified expert

3.7 Ratings (374 Votes)

Ans Project A's Payback Period = 3.0870 years

Project A's Discounted Payback period = 3.4507 years

Year	Cash Flow	Cumulative Cash Flow
0	-910	-910
1	250	-660
2	260	-400
3	340	-60
4	690	630
TOTAL	630

Payback Period =	3 years + 60/690
	3.0870 years

Year	Project Cash Flows (i)		DF@ 10% (ii)	PV of Project A ( (i) * (ii) )	Cumulative Cash Flow
0	-910		1	(910.00)	(910.00)
1	250		0.909	227.27	(682.73)
2	260		0.826	214.88	(467.85)
3	340		0.751	255.45	(212.40)
4	690		0.683	471.28	258.88
		NPV		258.88


Discounted Payback Period =		3 years + 212.40 / 471.28
		3.4507 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

Quantitative Problem: Bellinger Industries isconsidering two projects for inclusion in its capital budget, andyou have been asked to do the analysis. Both projects' after-taxcash flows are shown on the time line below. Depreciation, salvagevalues, net operating working capital requirements, and tax effectsare all included in these cash flows. Both projects have 4-yearlives, and they have risk characteristics similar to the firm'saverage project. Bellinger's WACC is 10%.01234Project A-950650410210260Project B-950250345360710What is Project A's payback? Round your answer to four decimalplaces. Do not round your intermediate calculations.What is Project A's discounted payback? Round your answer tofour decimal places. Do not round your intermediatecalculations.