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Project's payback period;net present value

Please use the attached Excel sheet and formulate answers to questions 11a - 11d, 12a - 12e and 13a - 13d.

11. Caledonia is considering two investments with one-year lives. The more expensive of the two is the better and will produce more savings. Assume these projects are mutually exclusive and that the required rate of return is 10 percent.

Given the following after-tax net cash flows:
YEAR PROJECT A PROJECT B
0 −$195,000 −$1,200,000
1 240,000 1,650,000
a. Calculate the net present value.
b. Calculate the profitability index.
c. Calculate the internal rate of return.
d. If there is no capital-rationing constraint, which project should be selected? If there is a capital-rationing constraint, how should the decision be made?

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?

13. The final two mutually exclusive projects that Caledonia is considering involve mutually exclusive pieces of machinery that perform the same task. The two alternatives available provide
the following set of after-tax net cash flows:
YEAR EQUIPMENT A EQUIPMENT B
0 −$100,000 −$100,000
1 65,000 32,500
2 65,000 32,500
3 65,000 32,500
4 32,500
5 32,500
6 32,500
7 32,500
8 32,500
9 32,500
Prentice Hall. Copyright © 2005 by Pearson Education, Inc.
Financial Management: Principles and Applications, Tenth Edition by Arthur J. Keown, John D. Martin, J. William Petty, and David F. Scott, Jr. Published by Pearson
ISBN: 0-536-18213-2
364 PART 3 INVESTMENT IN LONG-TERM ASSETS
Equipment A has an expected life of three years, whereas equipment B has an expected life of
nine years. Assume a required rate of return of 14 percent.
a. Calculate each project's payback period.
b. Calculate each project's net present value.
c. Calculate each project's internal rate of return.
d. Are these projects comparable?

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See the attached file.

a. Project A
Discount Rate 10%
Year 0 (195,000)
Year 1 240,000
NPV 23,182

Project B
Discount Rate 10%
Year 0 (1,200,000)
Year 1 1,650,000 ...

Solution Summary

This post solve multiple questions. It shows how to calculate the net present value, profitability index, internal rate of return.

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