Caledonia Products Essay

1187 Words5 Pages
Caledonia Products Company is introducing a new product. With previous fallouts from the company and ranging a 34% marginal tax bracket with a 15% required rate of return or cost of capital the change of direction is to initiate the new plan. Mr. V. Morrison, CEO, Caledonia products is asking for professional guidance to analyze his current cash flow statement to determine if the project of adding two mutually exclusive projects is profitable. Therefore, as an Assistant Financial Analyst, is take into account the interest to calculate Project A and Project B’s payback period, net present value, and internal rate of return to provide a recommendation on which project is tangible than the other. Payback period The payback period is the…show more content…
Net Present Value at an 11% Rate of Return 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 NPV $11,208 $11,608 Net Present Value (NPV) is the standard method for the financial appraiser of long-term projects. Measuring the excess or shortfalls of cash flows is to measure the difference of the invested and market cost. This method is a good investment, if of course, it brings money to the company, after the discounted rate is calculated. The discounted rate is the project’s Cost of Capital. If the present cash flows and future cash flows are done correctly, this will give the company the New Present Value. Thus, the projects should be accepted only if the plus is on the calculations of Net Present Value NPV > 0 measurements of time, profitability, value to the organization value to the shareholders. Internal Rate of Return The internal rate of return used for investments which produces cash flow over time. Internal rate of return is the discount rate that makes the net present value those cash flows equal to zero. The initial outlay for each project was $100,000. Project A’s internal rate of return is
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