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Caledonia is considering two additional mutually exclusive projects. The cash flows associated with these projects are as follows:
_________________________________________________________________________________
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
______________________________________________________________________________
The required rate of return on these projects is 11 percent.
a. What is each project's payback period?
b. What is each project's net present value?
c. What is each project's internal rate of return?
d. What has caused the ranking conflict?
e. Which project should be accepted? Why?
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Backwater Corp. has 10 percent coupon bonds making annual payments with a YTM of 9.3 percent. The current yield on these bonds is 9.65 percent.
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