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Cash Flow Case

Essay by   •  June 4, 2013  •  Study Guide  •  600 Words (3 Pages)  •  1,534 Views

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a. 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?

Ans.

Project A - need 32,000, made 100,000 1st year 100,000/32000 = 3.125 years |

Project B - need 20,0000, made 20,000 5th year 20,000/10000=.50 = 4.5 years |

12b. What is each project's net present value?

Project A Project B

-100,000 -100,000

32,000 0

32,000 0

32,000 0

32,000 0

32,000 0

32,000 200,000

R = .11

Project A NPV 32,000/1.11+32,000/(1.11)²+32,000/(1.11)³+32,000/(1.11)4+32,000/(1.11)5+32,000/(1.11)6

28,828.83+25,971.92+23,398.12+21,079.39+18,990.44+=

118,268.7-100,000=18,268.7

Project B NPV

-100,000 + 200,000(1.11)5=

...

...

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