Homework SourseBellinger Industries is considering two projects for inclusi
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 12%.
What is Project Delta\'s IRR? Do not round intermediate calculations. Round your answer to two decimal places.
What is the significance of this IRR? It is the
equity return/ crossover rate/ interest yield
after this point when mutually exclusive projects are considered there is no conflict in project acceptance between the NPV and IRR approaches.
| 0 | 1 | 2 | 3 | 4 | ||||||
| Project A | -1,040 | 590 | 360 | 230 | 280 | |||||
| Project B | -1,040 | 290 | 280 | 360 | 750 |
Solution
Delta IRR = 19.44% (use IRR function in Excel)
Graph C
| Cash flows | Year |
| - | 0 |
| 300.000 | 1 |
| 80.000 | 2 |
| (130.000) | 3 |
| (470.000) | 4 |
