FIN 370 Week 4 Team Assignment - Caledonia Products Integrative Problem

# FIN 370 Week 4 Team Assignment - Caledonia Products Integrative Problem

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Caledonia Products Integrative 1 Running head: CALEDONIA PRODUCTS INTEGRATIVE PROBLEM Caledonia Products Integrative Problem University of Phoenix

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Caledonia Products Integrative Problem 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? Project A’s payback period is 3.125 years. Project B’s payback period is 4.5 years. b. What is each project’s net present value? Project A NPV is \$18,272 Project B NPV is \$18,600 b. NPV A = t 5 1 t 0.11) (1 \$32,000 + = - \$100,000 = \$32,000 (3.696) - \$100,000 = \$118,272 - \$100,000 = \$18,272 NPV B = 5 ) 11 . 0 1 ( 000 , 200 \$ + - \$100,000 = \$200,000 (0.593) - \$100,000 = \$118,600 - \$100,000 = \$18,600
c. What is each project’s internal rate of return (IRR)? Project A’s IRR is 18%

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FIN 370 Week 4 Team Assignment - Caledonia Products Integrative Problem

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