Problem: 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