# Caladonia Products Integrative Problem Paper

Topics: Net present value, Finance, Investment Pages: 3 (516 words) Published: May 30, 2011
FIN/370
May 30, 2011
Chrissy Helbling

12a.
Project A :100,000/32,000 = 3.125 years
Project B : 100,000/200,000 = .5
4 years + .5 years= 4.5 years

12b. What is each project’s net present value?
For project A, the projects net present value is \$100,000 the initial investment overhead of the project is a negative expenditure because it is an expense to the company. Over the next five years the group expects to add the present annual value of \$32,000, the return rate will be 11% utilizing the annuity table. The factor will be 3.696 at 11% for five years. To calculate the cash inflow, multiply the annual \$32,000 by 3.696 at 11% to equal \$118.272. Over a five year period the total cash inflow is \$118,272 with a net value of \$18,272 for project A. Net present value = \$118,272 - \$100,000 = \$18,272 The first four years for project B, there was no cash flow. In year five there was \$200,000 in cash inflow. To calculate the present value of the \$200,000 for five years, now at 11, utilize the present value of \$1.00 table. The result factor of the table is 0.593. The present value of \$200,000 in five years at 11% calculates to be \$200,000 multiplied by 0.593, which equals \$118,600. The net present value for project B is \$18,600. Net present value = \$118,600 - \$100,000 = \$18,600 12C

The cash flow associated with these projects are as follows:| Year| Project A| Project B| | | |
0| - 100,000 | - 100,000 | | | |
1| 32,000 | - | | | | 2| 32,000 | - | | | | 3| 32,000 | - | | | | 4| 32,000 | - | | | | 5| 32,000 | 200,000 | | | |

| Project A| Project B| | | |
IRR| 18.03%| 14.87%| | | |

12D

12E

Describe factors Caladonia must consider if they were doing a...