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 11%.
| | 0 | 1 | 2 | 3 | 4 |
| | | | | | | | | | | |
| Project A | -1,200 | 600 | 450 | 330 | 300 |
| Project B | -1,200 | 400 | 330 | 410 | 745 |
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 -Select-equity returncrossover rateinterest yieldCorrect 1 of Item 2, after this point when mutually exclusive projects are considered there is no conflict in project acceptance between the NPV and IRR approaches.
Review the graphs below. Select the graph that correctly represents the correct NPV profile for Projects A and B by using the following drop-down menu.
Capital Budgeting Decision Criteria: NPV Profile A project's NPV profile graph intersects the Y-axis at 0% cost of capital and intersects the X-axis at the project's Select (where NPV - 0). The Y-axis intersection point represents the project's undiscounted NPV. The point at which 2 projects' profiles cross one another is the crossover rate. The crossover rate can be found by calculating the -Select- of the differences in the projects' cash flows (Project Delta), A-Select NPV profile indicates that increases in the cost of capital lead to large declines in NPV. If a project has most of its cash flows coming in later years, its NPV will -Select- sharply if the cost of capital increases; but a project whose cash flows come earlier will not be severely penalized by high capital costs. The significance of the crossover rate is that at any cost of capital -Select-than the crossover rate, the NPV and IRR methods will provide the same conclusion for evaluating mutually exclusive projects. However, at any cost of capital Select than the crossover rate, the NPV and IRR methods' conclusions will conflict. In that situation, the select method will always provide the correct project acceptance result. 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 11% 0 1 2 3 330 Project A -1,200 600 450 330 300 Project B -1,200 400 410 745 What is Project Delta's IRR? Do not round intermediate calculations. Round your answer to two decimal places. 96 What is the significance of this IRR? It is the -Select after this point when mutually exclusive projects are considered there is no conflict in project acceptance between the NPV and IRR approaches Review the graphs below. Select the graph that correctly represents the correct NPV profile for Projects A and B by using the following drop-down menu. -Select- NPV Prof NPV Profiles A NPV Profiles B NPV 6001 500 400+ 300 200 100 NPV 600+ 500 400+ 300+ 200 100+ S 10 15 25 30 tun 10 15 25 30 -100 -200 -300 -4004 Cost of antal -100 -200 -300 -400+ Cost of Contato - Project A Project B NPV Profiles C - Project A Project B NPV Profiles D INPV INPV 600 500 400 300 200 600 500 400+ 300+ 200+ 100+ 100 10 15 25 30 5 10 25 30 -100 -2001 -3001 -4001 Cost of capital -1001 -2001 -300 -4001 Cost Capital Project A - Project B Project A Project B 6 Capital Budgeting Decision Criteria: NPV Profile . . 7 8 9 0 0 A project's NPV profile graph intersects the Y-axis at 0% cost of capital and intersects the X-axis at the project's IRR (where NPV = 0). The Y-axis intersection point represents the project's undiscounted NPV. The point at which 2 projects' profiles cross one another is the crossover rate. The crossover rate can be found by calculating the TRR of the differences in the projects' cash flows (Project Delta). A steep NPV profile indicates that increases in the cost of capital lead to large declines in NPV. If a project has most of its cash flows coming in later years, its NPV will decline sharply if the cost of capital increases, but a project whose cash flows come earlier will not be severely penalized by high capital costs. The significance of the crossover rate is that at any cost of capital greater than the crossover rate, the NPV and IRR methods will provide the same conclusion for evaluating mutually exclusive projects. However, at any cost of capital less than the crossover rate, the NPV and IRR methods' conclusions will conflict. In that situation, the NPV method will always provide the correct project acceptance result 10 11 12 O 13 O 14 15 a 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 requiremeots, 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 11% 0 1 2 3 4 16 17 300 18 Project A -1,200 600 450 330 Project - 1.200 400 330 410 745 What is Project Delta's IRR? Do not round intermediate calculations. Round your answer to two decimal places. 19 20 oooooooo 21 22 23 What is the significance of this IRR? It is the select after this point when mutually exclusive projects are considered there is no conflict in project acceptance between the NPV and IRR approaches. Review the graphs below. Select the graph that correctly represents the correct NPV profile for Projects A and B by using the following drop-down menu. -Select- NPV Profiles A NPV Profiles INPV INPV 24 25 What is Project Delta's IRR? Do not round intermediate calculations. Round your answer to two decimal places. after this point when mutually exclusive pre are considered there is no conflict in project esents the correct NPV profile for Projects A and B by using the following drop-down menu. What is the significance of this IRR? It is th -Select- acceptance between the NPV and IRR appre equity return crossover rate Review the graphs below. Select the graph interest yield -Select- NPV Profiles A INPV 600 500 400 300 NPV Profiles B NPV 600 500 400+ 300 200 200 100 100 5 10 15 25 30 -100 -200 Cos del -300 -4001 Project A Project B NPV Profiles c ONPV 6001 500 400+ 300+ 200 1001 5 10 15 25 30 -1001 -200 Cost of Capta -3001 -4001 - Project A Project B NPV Profiles D INPV 600 500 400+ 300 200 100 30 25 5 10 25 15 30 10 -100 -200 -1001 -2001 Cost Cost of Capat /l
