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Your first assignment in your new position as an assistant financial analyst at Caledonia Products is...

Your first assignment in your new position as an assistant financial analyst at Caledonia Products is to evaluate two new​ capital-budgeting proposals. Because this is your first​ assignment, you have been asked not only to provide a recommendation but also to respond to a number of questions aimed at assessing your understanding of the​ capital-budgeting process. This is a standard procedure for all new financial analysts at​ Caledonia, and it will serve to determine whether you are moved directly into the​ capital-budgeting analysis department or are provided with remedial training. The memorandum you received outlining your assignment​ follows:

​To: New Financial Analysts

​From: Mr. V.​ Morrison, CEO, Caledonia Products

​Re: Capital-Budgeting Analysis

Provide an evaluation of two proposed​ projects, both with 55​-year expected lives and identical initial outlays of $150,000. Both of these projects involve additions to​Caledonia's highly successful Avalon product​ line, and as a​ result, the required rate of return on both projects has been established at 14 percent. The expected free cash flows from each project are shown in the popup​ window:

Initial outlay

Project A:

−​150,000

Project B:

−​150,000

Inflow year 1

30,000

 40,000

Inflow year 2

 20,000

40,000

Inflow year 3

 50,000

 40,000

Inflow year 4

 40,000

 40,000

Inflow year 5

70,000

 40,000

1.What is the payback period on project​ A?

2.What is the payback period on project​ B?

3.What is the NPV of project​ A?

4.What is the NPV of project​ B?

5.What is the PI for project​ A?

6.What is the PI for project​ B?

7.What is the IRR for project​ A?

8.What is the IRR for project​ B?

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