Good evening CH team,

For the following Quantitative Problem, I need some assistance with understanding each percentage and how you concluded each of the two IRRs.

Note, potential answers are bolded. Thank you for any assistance you can provide in helping me understand each problem type and how to reach the conclusion(s)!

For the drop-down menu the options, here are the potential solutions for each one:

(1) If the projects were independent....

Potential answers: Neither, Project A, Project B, Both Project A and B

(2) If the projects were mutually exclusive...

Potential answers: Neither, Project A, Project B, Both Project A and B

(3) Could there be a conflict with project acceptance between the NPV and IRR approaches when projects are mutually exclusive?

Potential answers: Yes or No

(4) The reason is:

Potential answers are shown below:

(a) The NPV and IRR approaches use the same reinvestment rate assumptions and so both approaches reach the same project acceptance when mutually exclusive projects are considered.

or

(b) The NPV and IRR approaches use different reinvestment rate assumptions and so there can be a conflict in project acceptance when mutually exclusive projects are considered.

(5) Reinvestment at the (IRR, or WACC) is the superior assumption, so when mutually exclusive projects are evaluated the (NPV, or IRR) approach should be used for the capital budgeting decision.

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%. 1 2 3 Project A -1,000 Project B -1,000 650 250 320 255 270 390 420 840 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- If the projects were mutually exclusive, which project(s) would be accepted according to the IRR method? -Select- Could there be a conflict with project acceptance between the NPV and IRR approaches when projects are mutually exclusive? -Select- The reason is -Select- 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.