Caledonia is considering two mutually exclusive projects
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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
Formulate answers and show all work
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?
F. Describe the factors that Caladonia would have to consider if they were doing a lease versus buy for the two projects.
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Solution Summary
The solution provides a detailed explanation to find each project's payback period, net present value, internal rate of return, and addresses other issues raised as required. The solution also provides proper references and formula for the calculations involved.
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Caledonia is considering two additional mutually exclusive projects. The cash flows associated with these projects are as follows:
Project A Project B
0 -$100,000 -$100,000
1 $32,000
2 $32,000
3 $32,000
4 $32,000
5 $32,000 $200,000
The required rate of return on these projects is 11%.
A. What is each project's payback period?
Payback period refers to the period of time required for the return on an investment to "repay" the sum of the original investment.
Project A Project B
Net cash flow (NCF) Cumulative NCF Net cash flow (NCF) Cumulative ...
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