12a) What is each projects payback period?
Project A: 100,000/32,000= 3.125
It will take 3.125 years for the payback.
Project B: There is no income recovery for the first 4 years so it will take 5 years for the project payback period.

12b) What is each project’s net present value? Project A Net present value = $118,272 - $100,000 = $18,272
Project B $200,000 * 0.593 = $118,690 Net present value = $118,690 - $100,000 = $18,690

12c) What is each project’s internal rate of return?
Project A = 18.03% Project B = 14.87% 12d) What has caused the ranking conflict? The ranking conflict comes from the different reinvestment assumptions based on the net present value and the internal rate of return. The net present value assumes the reinvestment of cash flow over the lifetime of the project. The internal rate of return assumes the cash flows reinvestment in a project is at the internal rate of return. 12e) Which project should be accepted? Why? Project A should be accepted. The NPV is lower but the IRR is at 18.03% and with a pay off in three and a half year. With an early pay off the company can reinvest in machines or receive additional benefits. Project B is showing a longer time frame to pay off and would exclude any possibilities not included in the analysis.

* Describe factors Caladonia must consider if they were doing a lease versus buy.

Caladonia has to analyze each project multiple ways to determine if buying or leasing the equipment is best. Considering the inflows and outflows of cash for the equipment is part of determining the net advantage of leasing (NAL). When leasing compared to purchasing for a company, the company can avoid certain operating expenses, incurs an after-tax rental expense, loses the tax-deductible expense associated with interest and depreciation,