Calcedonia Products Company presents a new product. Considering the company's previous returns and a marginal tax bracket of 34% with a required rate of return or cost of capital of 15%, the change in direction is to initiate the new plan. Mr. V. Morrison, CEO of Caledonia Products, seeks professional advice to analyze his current financial statement and determine whether the plan to add two mutually exclusive projects is profitable. Therefore, as an assistant financial analyst, you need to take into account the interest in calculating the payback period of project A and project B, the net present value and the internal rate of return to provide a recommendation on which project is tangible compared to the other. Payback periodThe payback period is the time it takes to break even on an investment measured in years. If the annual cash flow is identical, the payback period is equal to the investment divided by the annual cash flow. The payback period emphasizes the liquidity of an investment but not its value. Caledonia Products has both projects A and B with an equal negative value of ($100,000) in the first year with a rate of return of 11%. ProjectA Year NON-DISCOUNTED FREE CASH FLOWS PVIF * 11%, n DISCOUNTED FREE CASH FLOWS CUMULATIVE DISCOUNTED FREE CASH FLOWS0 ($100,000) 1.0 ($100,000) ($100,000)1 $32,000 0.901 $28,832.00 ($ 128,832.00)2 $32,000 0.812 $25,984.00 ($154,816.00)3 $32,000 0.731 392.00 ($178,208.00)4 $32,000 0.659 $21,088.00 ($199,296.0). 0)5 $32,000 $0.593 18,976.00 ($218,272.00) 3 years and 2 monthsThe payback period for Project A is three years and two months to recover the money.ProjectB Year NON-DISCOUNTED FREE CASH FLOWS PVIF * 11%, n DISCOUNTED FREE CASH ......half the paper.... ..so if Caledonia were to buy, it would not be able to sell after five years and make a profit. The property/system could appreciate over time and the purchase could be more advantageous. When trying to decide between leasing or buying, you should also consider the cost of service and repairs. In many lease agreements, the monthly payment includes the cost of any services or repairs. Although a purchase usually comes with a guarantee, there may still be some rather high costs. A lease generally requires no down payment or may require a small deposit that allows the company to maintain capital that could be used for other debts or purchases (Brandenburg, 2008). References Brandenburg, Jeff, 2008. Equipment Leasing versus Purchasing Considerations. Retrieved March 8, 2008 from online source: www.cliftoncpa.com/Content/NWNV44O1SO.pdf?Name=CoopNewsletterSummer06.pdf