Quantitative Problem: Bellinger Industries is considering two projects for inclu

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 12%.

a. What is Project A’s IRR? Round your answer to two decimal places.

b. What is Project B's IRR? Round your answer to two decimal places.

Explanation / Answer

For calculating the IRR, we need to work out the NPV of the two projects separately Based on the information given, NPV of Project A is $216.94 NPV of Project B is $202.47 Based on the NPVs worked out as above, the IRRs for the two projects is worked out as : IRR for Project A 24.80% IRR for Project B 20.26%

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