Belonged industries is considering two projects for inclusion in its capital bud

Question

Belonged 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 timeline 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. Bellingers WACC is 12%

What is the significance of this IRR?

It is the [Equity Return/Crossover Rate/Interest Yield]—select one of those—after this point when mutually exclusive projects are considered there is no conflict in project acceptance between the NPV and IRR approaches.

Review the graphs below and select which graph accurately represents the correct NPV profile for Projects A and B by using the following drop down menu:

eprint Problems Ch 11 Brigham Quantitative Problon: Belinger Indestries is considering two projlects for incusion in its capitual budget, and you hav b ato do the analysls Bath projects' aher-tax cash flows are shown on th characteridics snlar to thn firm i tage protec. Belinger's WACC is 12%. h*dA-950 550 420 310 Projedt 90 410 315 500 tha, ismiet beta's t ec, Dos round intermediate candatiorw. Round your teewo de what is thhe signficance of this Nev Profiles A Npy Proles c DLL Enter

Explanation / Answer

Project Delta's IRR is the IRR of the difference in the cash flows between two projects. On a financial calculator or excel, use IRR function to calculate Delta IRR.

CF0 = -950 + 950 = 0, CF1 = 410 - 510 = -140, CF2 = -105, CF3 = 115, CF4 = 190

Compute IRR = 10.50%

It is the crossover rate after which there is no conflict in IRR and NPV outcomes.

Profile C appears plausible as the crossover rate is around 10%, which is not the case in other profiles.

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.