Bellinger 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%.

0 1 2 3 4

Project A -1,040 590 360 230 280 Project

B -1,040 290 280 360 750

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.

Solution

Difference between A and B

The differential IRR = 19.44%

It is the cross over rate