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    Project Analysis for Caledonia: Net Present Value, IRR and Payback

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    Caledonia is considering two additional mutually exclusive projects. The cash flows associated with these projects are as follows:

    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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    Solution Summary

    The attached solution is an excel worksheet that provides formulas and explanations for the problem.

    The problem requires the evaluation of two projects using the net present value method, IRR and payback period analysis. These calculations and discussion are included in an attached Excel file.