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 10%.

What is Project Delta's IRR? Do not round intermediate calculations. Round your answer to two decimal places.

_____ %

0 1 2 3 4 PROJECT A -1200 600 400 230 300 PROJECT B -1200 410 330 210 740

Explanation / Answer

Project Delta cash flows are the difference in cash flows of Project A and B.

IRR of the above cash flows can be calculated using IRR function

CF0 = 0, CF1 = 190, CF2 = 70, CF3 = 20, CF4 = -440

=> Compute IRR = 18.69%

Project Delta 0 190 70 20 -440

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