# Caledonia: calculate payback period, NPV, IRR, and ranking conflict

I do not understand the NPV, or IRR. I have to answer these questions in an excel spreadsheet.

File is attached.

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?

https://brainmass.com/business/capital-budgeting/calculate-payback-period-npv-irr-ranking-conflict-203645

#### Solution Preview

Please see the attached file.

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?

a. Payback period is the time taken to recover the initial investment. To calculate the

payback period, we calculate the cumulative cash flow and find the time period needed

for the cumulative cash flow to become ...

#### Solution Summary

The solution explains how to calculate the Payback, Net Present Value, and Internal Rate of Return for the given projects and make the acceptance/rejection decision