In: Finance
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 | 590 | 360 | 220 | 280 | |||||
Project B | -1,100 | 230 | 300 | 360 | 700 |
What is Project Delta's IRR? Do not round intermediate
calculations. Round your answer to two decimal places.
%
Project A
Internal rate of return is calculated using a financial calculator by inputting the below:
The IRR of project is 14.47%.
Project B
Internal rate of return is calculated using a financial calculator by inputting the below:
The IRR of project is 13.63%.
The project A should be accepted since it has the highest internal rate of return.
Therefore, Project Delta’s IRR is 14.47%.
In case of any query, kindly comment on the solution.