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 9%.

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

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

0 1 2 3 4 Project A -1,300    700    380    280   330 Project B -1,300    300    315    430 780

Explanation / Answer

Payback of A = 1.0862

payback of B = 1.0961

Discount rate 9.0000% Cash flows Year Discounted CF= cash flows/(1+rate)^year Cumulative cash flow            (1,300.000) 0                             (1,300.00)                          (1,300.00)                  700.000 1                                   642.20                             (657.80)                  380.000 2                                   319.84                             (337.96)                  280.000 3                                   216.21                             (121.75)                  330.000 4                                   233.78                                112.03

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