Drop down options:

DD #1- Neither/ Project A/ Project B/ Both Projects

DD #2- Neither/ Project A/ Project B/ Both Projects

DD #3- Yes/ No

DD #4- The same reinvestment rate assumption so both approaches reach the same project acceptance/ different reinvestment rate assumptions so there can be a conflict in project acceptance.

DD #5- IRR/ WACC

DD #6- NPV/ IRR

Ch 10: Blueprint Problems - The Basics of Capital Budgeting: Evaluating Cash Flows X 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 4 Project A -1,100 600 360 270 290 Project B -1,100 200 295 420 740 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- would be accepted. If the projects were mutually exclusive, which project(s) would be accepted according to the IRR method? -Select- would be accepted. Could there be a conflict with project acceptance between the NPV and IRR approaches when projects are mutually exclusive? -Select- The reason is the NPV and IRR approaches use -Select- when mutually exclusive projects are considered. Reinvestment at the -Select- is the superior assumption, so when mutually exclusive projects are evaluated the -Select- approach should be used for the capital budgeting decision. Save & Continue