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Capital budgeting

11. 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?
Project A
Project B

b. What is each project's net present value?
Project A
Project B

c. What is each project's internal rate of return?
Project A
Project B

d. What has caused the ranking conflict?
Project A
Project B

e. Which project should be accepted? Why?
Project A
Project B

Solution Summary

The solution explains how to calculate Payback, NPV, IRR for the projects and make the accept/reject decision

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