Quantitative Problem: Bellinger Industries is considering two projects for inclu
ID: 2802405 • 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 8%.
What is Project A's payback? Round your answer to four decimal places. Do not round your intermediate calculations.
What is Project A's discounted payback? Round your answer to four decimal places. Do not round your intermediate calculations.
What is Project B's payback? Round your answer to four decimal places. Do not round your intermediate calculations.
What is Project B's discounted payback? Round your answer to four decimal places. Do not round your intermediate calculations.
Explanation / Answer
Project A
Using Financial Calculator
CF0=-1500 (press enter) Press Down key
CF1=650 (press enter) Press Down key
F01=1 (press enter) Press Down key
CF2=390 (press enter) Press Down key
F02=1 (press enter) Press Down key
CF3=240 (press enter) Press Down key
F03=1
CF4=290 (press enter) Press Down key
F04=1
Press NPV
Interest =8 (press enter) Press Down key
Scroll down thrice press CPT
Press CPT
Payback period=3.7586 years
Discounted payback period=discounted payback period will exceed beyond 4 years. Hence cannot be computed
Project B
Using Financial Calculator
CF0=-1500 (press enter) Press Down key
CF1=250 (press enter) Press Down key
F01=1 (press enter) Press Down key
CF2=325 (press enter) Press Down key
F02=1 (press enter) Press Down key
CF3=390 (press enter) Press Down key
F03=1
CF4=740 (press enter) Press Down key
F04=1
Press NPV
Interest =8 (press enter) Press Down key
Scroll down thrice press CPT
Press CPT
Payback period=3.7230 years
Discounted payback period=discounted payback period will exceed beyond 4 years hence cannot be computed