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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
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 $110,000. 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 11 percent. The expected free cash flows from each project are shown in the popup window: In evaluating these projects, please respond to the following questions: cash outlays at the beginning of a. The capital-budgeting process is so important because capital-budgeting decisions involve investments requiring rather the life of the project and commit the firm to a particular course of action over a relatively V time horizon. (Sele wn menus.) small moderate large b. Why is it difficult to find exceptionally profitable projects? (Select the best choice below.) O A. There is no reliable method to accurately estimate a project's future cash flows
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