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 10%. Project A -900 600 420 220 270 Project B -900 200 355 370 720 What is Project A's payback? Do not round intermediate calculations. Round your answer to four decimal places. years What is Project A's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places. years What is Project B's payback? Do not round intermediate calculations. Round your answer to four decimal places. years What is Project B's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places. years
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 10%. Project A -900 600 420 220 270 Project B -900 200 355 370 720 What is Project A's payback? Do not round intermediate calculations. Round your answer to four decimal places. years What is Project A's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places. years What is Project B's payback? Do not round intermediate calculations. Round your answer to four decimal places. years What is Project B's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places. years
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![**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 four-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 10%.
**Cash Flows by Year:**
- **Year 0:**
- Project A: -900
- Project B: -900
- **Year 1:**
- Project A: 600
- Project B: 200
- **Year 2:**
- Project A: 420
- Project B: 355
- **Year 3:**
- Project A: 420
- Project B: 370
- **Year 4:**
- Project A: 270
- Project B: 720
**Questions:**
1. What is Project A's payback? Do not round intermediate calculations. Round your answer to four decimal places.
[___] years
2. What is Project A's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places.
[___] years
3. What is Project B's payback? Do not round intermediate calculations. Round your answer to four decimal places.
[___] years
4. What is Project B's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places.
[___] years
**Explanation of Diagram:**
The diagram represents a timeline of cash flows associated with two projects under consideration by Bellinger Industries. Each project includes an initial cash outflow (investment) in Year 0, followed by a series of cash inflows over the next four years. The cash flow values vary between the two projects, reflecting different revenue-generating capabilities and cost structures over the project's life. The presented problem asks for the calculation of standard and discounted paybacks, considering the time value of money at a WACC of 10%.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4a838c8e-9209-4b5d-b96a-c966f484a578%2F4a213a7f-34a9-4130-a175-2d6b8c81b1ee%2Flrwmjjz_processed.png&w=3840&q=75)
Transcribed Image Text:**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 four-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 10%.
**Cash Flows by Year:**
- **Year 0:**
- Project A: -900
- Project B: -900
- **Year 1:**
- Project A: 600
- Project B: 200
- **Year 2:**
- Project A: 420
- Project B: 355
- **Year 3:**
- Project A: 420
- Project B: 370
- **Year 4:**
- Project A: 270
- Project B: 720
**Questions:**
1. What is Project A's payback? Do not round intermediate calculations. Round your answer to four decimal places.
[___] years
2. What is Project A's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places.
[___] years
3. What is Project B's payback? Do not round intermediate calculations. Round your answer to four decimal places.
[___] years
4. What is Project B's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places.
[___] years
**Explanation of Diagram:**
The diagram represents a timeline of cash flows associated with two projects under consideration by Bellinger Industries. Each project includes an initial cash outflow (investment) in Year 0, followed by a series of cash inflows over the next four years. The cash flow values vary between the two projects, reflecting different revenue-generating capabilities and cost structures over the project's life. The presented problem asks for the calculation of standard and discounted paybacks, considering the time value of money at a WACC of 10%.
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