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 11%.

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

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

0 1 2 3 4 Project A -1,450 700 355 200 250 Project B -1,450 300 290 350 700

Explanation / Answer

Solution:

Project A Year Cash Flows Future Factor Formula Terminal Value 0 -1,450 1 700 1.367 (1.11)*4-1 956.9 2 355 1.2321 (1.11)*4-2                   437.40 3 200 1.11 (1.11)*4-3 222 4 250 1 (1.11)*4-4 250 $ 1,866.30 MIRR Project A = (1,866.30 / 1,450) *1/4 - 1 = 6.52 %

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