What is Project B\'s discounted payback? Round your answer to four decimal place

Question

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

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%. 4 355 250 Project A 1,200 700 Project B 1,200 00 290400750 300

Explanation / Answer

Project A

Project B

Year 0 Year 1 Year 2 Year 3 Year 4 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Cash flow -1200 700 355 250 300 Discount rate % 11.0% present value of cashflows -1200 630.6 288.1 182.8 197.6 NPV 99.17 IRR 15.63% Cumulative Cash Flow -1200.00 -500.00 -145.00 105.00 405.00 Discounted cumulative cash flows -1200.00 -569.37 -281.24 -98.45 99.17 Profitability Index = PV of future cashflows/initial investment 1.08 Paybac period Discounted payback period 3.5

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