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%. Project A Project B -1,050 600 360 300 290 -1,050 200 295 450 740 What is Project A's IRR? Do not round intermediate calculations. Round your answer to two decimal places. What is Project B's IRR? Do not round intermediate calculations. Round your answer to two decimal places. If the projects were independent, which project(s) would be accepted according to the IRR method? ESelect

Intermediate Financial Management (MindTap Course List)
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Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 21P: Your division is considering two investment projects, each of which requires an up-front expenditure...
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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%.
1
2
4
Project A
-1,050
600
360
300
290
Project B
-1,050
200
295
450
740
What is Project A's IRR? Do not round intermediate calculations. Round your answer to two decimal places.
%
What is Project B's IRR? Do not round intermediate calculations. Round your answer to two decimal places.
%
If the projects were independent, which project(s) would be accepted according to the IRR method?
-Select-
If the projects were mutually exclusive, which project(s) would be accepted according to the IRR method?
-Select-
Could there be a conflict with project acceptance between the NPV and IRR approaches when projects are mutually exclusive?
|-Select- V
The reason is -Select-
Reinvestment at the -Select- V is the superior assumption, so when mutually exclusive projects are evaluated the -Select- V approach should be used for the capital budgeting decision.
Transcribed Image Text: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%. 1 2 4 Project A -1,050 600 360 300 290 Project B -1,050 200 295 450 740 What is Project A's IRR? Do not round intermediate calculations. Round your answer to two decimal places. % What is Project B's IRR? Do not round intermediate calculations. Round your answer to two decimal places. % If the projects were independent, which project(s) would be accepted according to the IRR method? -Select- If the projects were mutually exclusive, which project(s) would be accepted according to the IRR method? -Select- Could there be a conflict with project acceptance between the NPV and IRR approaches when projects are mutually exclusive? |-Select- V The reason is -Select- Reinvestment at the -Select- V is the superior assumption, so when mutually exclusive projects are evaluated the -Select- V approach should be used for the capital budgeting decision.
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