Quantitative Problem: Bellinger Industries is considering two projects for inclu
ID: 2719843 • 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%.
Project A -900 500 320 380 310
Project B -900 430 315 395 400
What is Project Delta's IRR? Round your answer to two decimal places.
Explanation / Answer
Project A
Project B
Year 0 Year 1 Year 2 Year 3 Year 4 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Cash flow -900 500 320 380 310 Discount rate % 9.0% present value of cashflows -900 458.7 269.3 293.4 219.6 NPV 341.09 IRR 26.74%