Caledonia is considering two additional mutually exclusive projects. The cash flows associated with tese projects are as follows:
Year ProjectA Year Project B
0 -$100,000 0 -$100,000
1 32,000 1 0
2 32,000 2 0
3 32,000 3 0
4 32,000 4 0
5 32,000 5 $200,000
The required rate of return on these projects is 11percent.
a. What is each project's payback period?
b. What is each projects net present value?
c. What is each project's internal rate of return?
d. What has caused the ranking conflict?
e. Which project shoudl be accepted? Why?
f. Describe the factors that Caledonia would have to consider if they were doing a lease versus buy for the two projects.