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-   -   Caledonia is considering two additional mutually exclusive projects. (https://www.askmehelpdesk.com/showthread.php?t=525960)

  • Nov 14, 2010, 09:10 PM
    charekam
    Caledonia is considering two additional mutually exclusive projects.
    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?
  • Nov 14, 2010, 11:00 PM
    Just Looking

    Please see this notice.
    https://www.askmehelpdesk.com/financ...-b-u-font.html

    If you'd like to try the answers we'll check them for you, or if you need help we'll walk you through them. It won't help you to learn or understand the concepts if we just tell you the answers.

    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.

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