Hi, can you please solve this problem :) Thank you! Quantitative Problem: Bellin

Question

Hi, can you please solve this problem :) Thank you!

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 MIRR? Round your answer to two decimal places. Do not round your intermediate calculations.

B.) What is Project B's MIRR? Round your answer to two decimal places. Do not round your intermediate calculations.

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%.

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

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

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

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

0 1 2 3 4 Project A -900 650 445 200 250 Project B -900 250 380 350 700

Explanation / Answer

MIRR:

Project A :

Present value of costs = $ 900

Terminal value of cash inflows expected from the project = 650 x (1.11)3 + 445 ( 1.11)2 + 200 x (1.11) + 250 =888.96+ 548.28 + 222 + 250 = $ 1,909.24

The MIRR is obtained as follows:

900 = 1,909 / (1+MIRR)4 or MIRR = 0.2067 or 20.67%

Project B:

Present value of costs = $ 900

Terminal value of cash inflows expected from the project = 250 x (1.11)3 + 380 x (1.11)2 + 350 x 1.11 + 700 = 341.91+468.20 + 388.5 + 700 = $ 1,899

The MIRR is obtained as follows:

900 = 1,899 / ( 1 + MIRR)4 or MIRR = 0.2052 or 20.52%

Payback:

Project A: 2 years + (1,150 - 1,095) / ( 1,305-1,095) = 2.26 years

Project B : 3 years + (1,150 - 990) / ( 1,700 - 990) = 3.2254 years

Discounted payback :

Project A:

Discounted payback period = 3 years + (1,150 - 1,104.95) / ( 1,276.29 - 1,104.95) = 3.2629 years

Year 1 2 3 4 Cash inflows 700 395 210 260 PV factor at 11% 0.901 0.812 0.731 0.659 Discounted cash inflows 630.7 320.74 153.51 171.34 Cumulative discounted cash flows 630.7 951.44 1,104.95 1,276.29

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