Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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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 9%.
0
1
2
3
4
Project A
Project B
-Select-
-1,300
-1,300
%
What is Project A's IRR? Do not round intermediate calculations. Round your answer to two decimal places.
-Select-
640
240
310
245
What is Project B's IRR? Do not round intermediate calculations. Round your answer to two decimal places.
-Select-
280
430
If the projects were independent, which project(s) would be accepted according to the IRR method?
400
850
If the projects were mutually exclusive, which project(s) would be accepted according to the IRR method?
The reason is -Select-
Could there be a conflict with project acceptance between the NPV and IRR approaches when projects are mutually exclusive?
Reinvestment at the -Select- is the superior assumption, so when mutually exclusive projects are evaluated the select
decision
approach should be used for the capital budgeting
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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 9%. 0 1 2 3 4 Project A Project B -Select- -1,300 -1,300 % What is Project A's IRR? Do not round intermediate calculations. Round your answer to two decimal places. -Select- 640 240 310 245 What is Project B's IRR? Do not round intermediate calculations. Round your answer to two decimal places. -Select- 280 430 If the projects were independent, which project(s) would be accepted according to the IRR method? 400 850 If the projects were mutually exclusive, which project(s) would be accepted according to the IRR method? The reason is -Select- Could there be a conflict with project acceptance between the NPV and IRR approaches when projects are mutually exclusive? Reinvestment at the -Select- is the superior assumption, so when mutually exclusive projects are evaluated the select decision approach should be used for the capital budgeting Check My Work (3 remaining)
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