Quantitative Problem: Bellinger Industries is considering two projects for inclu
ID: 2719126 • Letter: Q
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 all included 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 9%.
What is Project Delta's IRR? Round your answer to two decimal places. (%)
0 1 2 3 4 Project A -900 500 320 380 310 Project B -900 430 315 395 400Explanation / Answer
IRR of project A is 26%
IRR of Project B is 25%
0 1 2 3 4 NPV A -900 500 320 380 310 B -900 430 315 395 400 PV at 9% 1 0.917 0.842 0.772 0.708 PV of A -900 458.5 269.44 293.36 219.48 340.78 PV of B -900 394.31 265.23 304.94 283.2 347.68 0 1 2 3 4 NPV A -900 500 320 380 310 B -900 430 315 395 400 PV at 26% 1 0.794 0.63 0.5 0.397 PV of A -900 397 201.6 190 123.07 11.67 PV at 25% 1 0.8 0.64 0.512 0.4096 PV of B -900 344 201.6 202.24 163.84 11.68