Bellinger Industries is considering two Projects for inclusion in its capitul budget, and you have been asked to do the analysis. Both projects after-tax cash flows are shown on the time line below, Depreciation, -alvage values, net operating working capitul equirements, and tax effects are all included a these cash flows. Both projects have

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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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.
Both
projects after-tax cash flows are
Shown on the time line below, Depreciation,
Salvage values, net operating working capitul
requirements, and tax effeets are all included
in these cash flows. Both projects have
4-year lives, and they have risk characteristics
Similar to the film's average project. Bellinger's
WACC is 12%
0
t
-1₂,110
-
~ 1, 110
1
790
390
2
+
350
285
What is Project A's IRR?
۶/۰
What is Project B's IRR?
%
3
250
400
4
300, Project A
250 Project B
TOW
Transcribed Image Text: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 capitul requirements, and tax effeets are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics Similar to the film's average project. Bellinger's WACC is 12% 0 t -1₂,110 - ~ 1, 110 1 790 390 2 + 350 285 What is Project A's IRR? ۶/۰ What is Project B's IRR? % 3 250 400 4 300, Project A 250 Project B TOW
Expert Solution
Step 1: Introduction of internal rate of return

Internal rate of return refers to the method of capital budgeting helps in determining the return earned by the investors over the investment made during the life of the project on the basis of which decisions are to be taken.


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