Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.

Get a Professional Answer

Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.

100% Satisfaction Guarantee

Rate the answer you receive.

Ask Linda_us Your Own Question

Linda_us, Finance, Accounts & Homework Tutor

Category: Homework

Satisfied Customers: 7211

Experience: Post Graduate Diploma in Management (MBA)

19873544

Type Your Homework Question Here...

Linda_us is online now

11. Caledonia is considering two investments with

Resolved Question:

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 1. Calculate the net present value. 2. Calculate the profitability index. 3. Calculate the internal rate of return. 4. 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. 1. What is each project’s payback period? 2. What is each project’s net present value? 3. What is each project’s internal rate of return? 4. What has caused the ranking conflict? 5. 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 Â 32,500 5 Â 32,500 6 Â 32,500 7 Â 32,500 8 Â 32,500 9 Â 32,500

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.

1. Calculate each project’s payback period. 2. Calculate each project’s net present value. 3. Calculate each project’s internal rate of return. 4. Are these projects comparable? 5. Compare these projects using replacement chains and EAAs. Which project should be selected? Support your recommendation.

What formulas did you use to solve these questions? I have seen multiple formulas and want to know what one to use to get the proper answer. I normally try and solve these by hand and then type them out in an MS Word document, so I like to be able to show how I did it by hand.

I used formulas present in excel for IRR. For NPV I did it from the most basis method that is multiplying the cash flow of each year with the present value factor of that year and then adding all the present values. For payback period its the period in which the original investment is recovered. Let me know if you need any further explanation, I would be happy to assist you.

Will you please show me the formula? I have a hard time understanding what formula is used when it is described. I do better with actually seeing the formula itself written out. Also, where do you go in Excel to be able to find and perfrom the other calculations?

If it is not too much trouble, I would prefer MS Word document. I like to be able to see what formula I am using, and then write it out in MS word so that it shows exactly what I am doing. This is about the only way I can understand financial formulas.

THIS ANSWER IS LOCKED! You can view this answer by clicking here to Register or Login and paying $3. If you've already paid for this answer, simply Login.

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.

JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.

Web sites like justanswer.com/legal ...leave nothing to chance.

Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.

Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.

I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.Freshfield, Liverpool, UK

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.GPHesperia, CA

I couldn't be more satisfied! This is the site I will always come to when I need a second opinion.JustinKernersville, NC

Just let me say that this encounter has been entirely professional and most helpful. I liked that I could ask additional questions and get answered in a very short turn around. EstherWoodstock, NY

Thank you so much for taking your time and knowledge to support my concerns. Not only did you answer my questions, you even took it a step further with replying with more pertinent information I needed to know. RobinElkton, Maryland

He answered my question promptly and gave me accurate, detailed information. If all of your experts are half as good, you have a great thing going here.DianeDallas, TX