Bellinger Industries is considering two projects for inclusion in its capital bu

Question

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 A's payback? Round your answer to four decimal places. Do not round your intermediate calculations.

years

What is Project A's discounted payback? Round your answer to four decimal places. Do not round your intermediate calculations.

years

What is Project B's payback? Round your answer to four decimal places. Do not round your intermediate calculations.

years

What is Project B's discounted payback? Round your answer to four decimal places. Do not round your intermediate calculations.

years

0 1 2 3 4 Project A -1,500 700 370 210 260 Project B -1,500 300 305 360 710

Explanation / Answer

1) Project A Project B Particulars Time PVF Amount PV Amount PV Initial Investment 0.00                       1.0000                (1,500.00)                           (1,500.00)                     (1,500.00)                     (1,500.00)                                          -   PV of Cash Outflows                           (1,500.00)                     (1,500.00) Cash Inflows 1.00                       0.9091                      700.00                                 636.36                           300.00                           272.73 Cash Inflows                  2.00                       0.8264                      370.00                                 305.79                           305.00                           252.07 Cash Inflows                  3.00                       0.7513                      210.00                                 157.78                           360.00                           270.47 Cash Inflows                  4.00                       0.6830                      260.00                                 177.58                           710.00                           484.94 PV of Cash Inflows                             1,277.51                       1,280.21 NPV                               (222.49)                         (219.79) Project A Project B Year Cash Flows Cumulative Cash Fows Cash Flows Cumulative Cash Fows                                                           -                                                        1.00             700.00                   700.0000                      300.00                                 300.00                                                      2.00             370.00               1,070.0000                      305.00                                 605.00                                                      3.00             210.00               1,280.0000                      360.00                                 965.00                                                      4.00             260.00               1,540.0000                      710.00                             1,675.00          1,540.00                   1,675.00 Payback period 3 + (1,500 - 1,280)/260 3 + (1,500 - 965)/710 Payback period 3.85 Years 3.75 Years No discounted payback period for Project A and Project B as they have negative NPV

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