Question

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%.

	0		1		2		3		4
Project A	-950		650		410		210		260
Project B	-950		250		345		360		710

What is Project A's payback? Round your answer to four decimal places. Do not round your intermediate calculations.

What is Project A's discounted payback? Round your answer to four decimal places. Do not round your intermediate calculations.

Answer 1

Ans Project A's Payback Period = 3.0870 years

Project A's Discounted Payback period = 3.4507 years

Year	Cash Flow	Cumulative Cash Flow
0	-910	-910
1	250	-660
2	260	-400
3	340	-60
4	690	630
TOTAL	630
Payback Period =	3 years + 60/690
	3.0870 years

Year	Project Cash Flows (i)		DF@ 10% (ii)	PV of Project A ( (i) * (ii) )	Cumulative Cash Flow
0	-910		1	(910.00)	(910.00)
1	250		0.909	227.27	(682.73)
2	260		0.826	214.88	(467.85)
3	340		0.751	255.45	(212.40)
4	690		0.683	471.28	258.88
		NPV		258.88
Discounted Payback Period =		3 years + 212.40 / 471.28
		3.4507 years