chapter 11 2. Quantitative Problem: Bellinger Industries is considering two proj
ID: 2643523 • Letter: C
Question
chapter 11
2. 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 11%.
a. What is Project A's payback? Round your answer to four decimal places. Do not round your intermediate calculations.
= years
b. What is Project A's discounted payback? Round your answer to four decimal places. Do not round your intermediate calculations.
= years
c. What is Project B's payback? Round your answer to four decimal places. Do not round your intermediate calculations.
= years
d. What is Project B's discounted payback? Round your answer to four decimal places. Do not round your intermediate calculations.
= years
Explanation / Answer
A. Year Inflow Outflow
0 -1300 -1300
1 650 -650
2 440 -210
3. 290 80
Payback Period 2+210/290= 2.7241 Year.
B. Year Inflow NPV Discounted NPV cumulative
0 -1300 1.0000 -1300.0000 -1300.0000
1 650 .9009 585.5850 -714.4150
2 440 .8116 357.1040 -357.3110
3 290 .7312 212.0480 -145.2630
4 340 .6587 223.9580 78.695
Discounted Payback period 3+145.263/223.958= 3.6486 Year
C)
Year Outflow Cumlative
0 -1300 -1300
1 250 -1050
2 375 -675
3 440 -235
4 790 555
Payback Period 3+235/790= 3.2975 Years
D) year Outflow NPV Discounted Cumlative
0 -1300 1.0000 -1300.0000 -1300.000
1 250 0.9009 225.2250 -1074.775
2 375 0.8116 304.3500 -770.425
3 440 0.7312 321.728 -448.697
4 790 0.6587 520.3730 71.676
Discounted Payback Period = 3 +448.697/520.373= 3.8623 Years
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