12. Caledonia is considering two additional mutually exclusive projects. The cash flows associated
with these projects are as follows:
YEAR PROJECT A PROJECT B
0 −$100,000 −$100,000
1 32,000 0
2 32,000 0
3 32,000 0
4 32,000 0
5 32,000 $200,000
The required rate of return on these projects is 11 percent.
a. What is each project's payback period?
b. What is each project's net present value?
c. What is each project's internal rate of return?
d. What has caused the ranking conflict?
e. Which project should be accepted? Why?

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Just to get you started, I'll show you how to do (a). The formula for payback period is:

Payback period = Investment required / Net annual cash inflow

Project A = 100,000/32,000 = 3.125 years
Project B - The formula won't work because the cash flows are uneven. In this case, you have to reason it out. You are putting out $100,000 but see no cash flow until year 5. At that point, your cash flow is greater than the initial outlay, so the answer can be reasoned to be 4.5 years (partway through year 5).

In each question, start by looking up the formula and then try to compute the answer. If you show your work, someone can then check it and help you.