0 20 3% Mini Case. Chapter 10 (similar to) Question Help Your first assignment in your new position as 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 5-year expected lives and identical initial outlays of $130,000. 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 a. The capital-budgeting process is so important because capital-budgeting decisions involve investments requiring rather cash outlays at the beginning of the life of the project and commit the firm to a particular course of action over a relatively time horizon (Select from the drop-down menus.) Click to select your answer(s) and then click Check Answer, 23 parts Clear All Final Check remaining Sheet1 Type here to search o BE some FO Nini Case. Chapter 10 (similar to) Question Help Re. Capital-Budgeting Analysis Provide an evaluation of two proposed projects, both with 5-year expected lives and identical initial outlays of $130,000. Both of these projects involve addition to Caledonia's highly successful Avalon product line, and as a result, the required rate of return on both projects has been established at 11 percent. The expected free cash fows from each project aro shown in the popup window In evaluating these projes, please respond to the following questions a. Why is the capital-budgeting process so important? b. Why is it difficult to find exceptionally profitable projects? c. What is the payback period on each project? Caledonia imposes a 3 year maximum acceptable paytrack period, which of these projects should be accepted? Wheme with hand? The capital budgeting process is so important because capital.budgeting decisions Evolve investments requiring father cash outlays at the bogering of the ite of the project and commit the firm to a particular course of action over a relatively time horizon (Select from the drop-down menus) Choose your answer and the Check Answer 23 marind CA Shen Final Check o 7 2 3 5 6 7 B 1 O 0 W E R T Y U o 3 P S D F G . J 2 L 1 3 N X C V B N M 0 all alt cu of two proposed projects, both with 5-year expected lives and identical initial outlays of $130,000. Both of the aledonia's highly successful Avalon product line, and as a result, the required rate of return on both projects cent. The expected free cash flows from each project are shown in the popup window: broja Data Table bf these al-bud to find pack ed? riirien dgeting of the own men (Click on the following icon in order to copy its contents into a spreadsheet.) me horizon Initial outlay Inflow year 1 Inflow year 2 Intlow year 3 Inflow year 4 Inflow year 5 PROJECTA - $130,000 10,000 20,000 50,000 50,000 60,000 PROJECTB $130,000 40,000 40,000 40,000 40,000 40,000 et your ans Print Done al Check wning ORD 3 7 B e no FA F5 FE F DOLC F10 FB & $ 4 3 0) > 5 7 8 9 E R T Y U 4 5 o 6 D F G H J 2 HW Score: 36.84%. 7 of 19 Question Help 3 O 12 3 of 3 (2 complete Mini Case. Chapter 10 (similar to) in evaluating these projects, please respond to the following questions a. Why is the capital-budgeting process so important? b. Why is totiut to find exceptionally profitable projects c. What is the payback penod on each project? If Caledonia imposes a 3.your maximum acceptable payback period, which of these projects should be accepted? d. What are the criticisms of the payback period? e. Determine the NPV for each of these projects. Should either project be accepted? Describe the logic behind the NPV g. Determine the Pl for each of these projects. Should either project be accepted? h. Would you expect the NPV and P methods to give consistent accept react decisions? Why why not? L. What would happen to the NPV and P for each project of the required tale of totum increased if the required rate of rebun dised? Define the IRR for each project. Should either project be accepted? k. How does a change in the road ratio of reumatoct the proyect's intemal rate ofretum? 1. What reinvestment role assumptions are implicitly made by the NPV and IRR methoos? Which one is better? a. The capital-budgeting process is so important because capital-budgeting decisions involve investments rouring rather portio for course of action over a relatively time hormon. (Select from the drop-down menu kranen outlayu at the besparing at the ble at the project and core than tom to al moderate large Click to set your newer) and then click Check Answer 23 CA Temning p Type here to such O BI PM VISO 5 1 2 3 5 6 B 0 Q E R. T Y o P S D F G H C 2