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Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis
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 -1,100 600 390 240 290
Project B -1,100 200 325 390 740
a) What is Project A's payback? Do not round intermediate calculations. Round your answer to four decimal places.
b) What is Project A's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places.
c) What is Project B's payback? Do not round intermediate calculations. Round your answer to four decimal places.
d) What is Project B's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places.
Expert Solution
a) Project's A payback period = 2.4583 years
b) Project's A discounted payback period = 3.3530 years
c) Project's B payback period = 3.2500 years
d) Project's B discounted payback period = 3.7608 years
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