A project's internal rate of retum (IRR) is the select that forces the PV of its inflows to equal its cost. The IRR is an estimate of the project's rate of return, and it is comparable to the act on a bond. The equation for calculating the IRR IS: NPV - CF + CE + CP + TROL 1 TRUL , "(1 + IRR) CF is the expected cash flow in Period and cash outflows are treated as negative cash flows. There must be a change in cash flow signs to calculate the IRR. The IRR equation is simply the NPV equation solved for the particular discount rate that causes NPV to equal Select The Il calculation assumes that cash flows are reinvested at the best with TRAS CV than the project's riskadjusted cost of capital, then the project should be accepted, however, if the tistess than the project's risk-adjusted cost of capital, then the project should be let v Because of the reinvestment rate assumption when projects are evaluated the TRR approach can lead to conflicting results from the NPV method. Two basic conditions can lead to conflicts between NPV and IRAIL differences (earlier cash flows in one project vs later cash flows in the other project) and projects the cost of one project is targer than the other). When mutually exclusive projects are considered, then the method should be used to evaluate projects Quantitative Problemi 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. Belinger's WACC is 9%. 3 0 2 400 240 Project -1,300 640 310 280 Projects -1.300 245 430 850 What is Project. A's TRA? Do not round intermediate calculations, Round your answer to two decimal places What is Project O'S TRA? Do not round Intermediate calculations. Round your answer to two decimal places y the projects were independent, which project(s) would be scented according to the method? or the projects were mutually exclusive, which project(s) would be accepted according to the IRR method Could there be a ceflict with project acceptance between the NPV and approaches when projects are mutually exclusive) There is investment at the the superior stumtion, so when mutually ve project an evaluated the approach should be used for the capital budgeting de
