# Caladonia Products Integrative Problem Paper

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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

References: Keown, A. J., Martin, J. D., Petty, J. W., &amp; Scott, D.F. (2005). Financial Management: Principles &amp; Applications (10th ed.). Upper Saddle River, New Jersey: Pearson Prentice Hall

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