Quantitative Problem: Bellinger Industries is considering two projects for inclu
ID: 2719484 • 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 A's MIRR? Round your answer to two decimal places. Do not round your intermediate calculations.
%
What is Project B's MIRR? Round your answer to two decimal places. Do not round your intermediate calculations.
%
Explanation / Answer
We can compute MIRR using MIRR function in excel:
Year
Project A
Project B
0
-1350
-1350
1
700
300
2
400
335
3
250
400
4
300
750
MIRR
9.69%
9.94%
Hence MIRR of project A is 9.69% and MIRR of Project B is 9.94%.
Year
Project A
Project B
0
-1350
-1350
1
700
300
2
400
335
3
250
400
4
300
750
MIRR
9.69%
9.94%