What is the projects initial outlay in the caledonia project

This is through an iterative process, solving for IRR in the following equation: From a theoretical standpoint, if the IRR is greater than the cost of capital, the project is profitable.

What is the projects initial outlay in the caledonia project

Although your boss has been pleased with your work, he is still a bit hesitant about unleashing you without supervision. Your next assignment involves both the calculation of the cash flows associated with a new investment under consideration and the evaluation of several mutually exclusive projects.

Given your lack of tenure and Caledonia, you have been asked not only to provide a recommendation but also to respond to a number of questions aimed at judging your understanding of the capital-budgeting process. The memorandum you received outlining your assignment follows: The Assistant Financial Analyst From: Currently we are in the 34 percent marginal tax bracket with a 15 percent required rate of return or cost of capital.

This project is expected to last 5 years and then, because this is somewhat of a fad product, be terminated. The following information describes the new project: Cost of new plant and equipment: Units sold 80, Year 5: Units sold 60, Sales price per unit: For each year, the total investment in new working capital will be equal to 10 percent of the dollar value of sales for that year.

Thus, the investment in working capital will increase during years 1 through 3, then decrease in year 4. Finally, all working capital is liquidated at the termination of the project at the end of year 5.

Use the simplified straight-line method over 5 years. Assume that the plant and equipment will have no salvage value after 5 years.

Should Caledonia focus on cash flows or accounting profits in making its capital-budgeting decisions? Should the company be interested in incremental cash flows, incremental profits, total free cash flows, or total profits?

How does depreciation affect free cash flows or total profits? How do sunk costs affect the determination of cash flows?

What is the projects initial outlay in the caledonia project

What is the terminal cash flow? Draw a cash flow diagram for this project H. What is its net present value? What is its internal rate of return? Should the project be accepted? Why or why not? In capital budgeting, risk can be measured from three perspectives.

What are those three measures of a projects risk?Therefore, in calculating net initial investment outlay, analysts need to ignore the sunk costs but include opportunity costs in their analysis. Example Green Metro, Inc. is a company interested in public transportation projects in developing countries.

Caledonia Products Calculating Free Cash Flow and Project Valuation It’s been two months since you took a position as an assistant financial analyst at Caledonia Products. Although your boss has been pleased with your work, he is still a bit hesitant about unleashing you without supervision.

Your. Week 4 Team project was to answer question 12 a-e on page , Chapter 10 of Financial Management: Principles and Applications. Caledonia is considering two additional mutually exclusive projects.

The cash flows associated with these projects are as follows: YEAR | PROJECT A | PROJECT B | 0 | -$. According to Financial Management: Principles and Applications Net present value is defined as “A capital-budgeting decision criterion defined as the present value of the free cash flows after tax less the project’s initial outlay” (Keown, Martin, Petty, & Scott, , p.

). The initial cash outlay is the amount paid to the stat the project or the investment. This result in the negative amount because of its large initial capital investment made by the organization for the purpose of generation the future positive cash flow in return.

Caledonia Products Calculating Free Cash Flow and Project Valuation FIN Caledonia ProductsCalculating Free Cash Flow and Project Valuation Its been two months since you took a position as an assistant financial analyst at Caledonia Products.

Although your boss has been pleased with your work, he is still a bit hesitant about unleashing you without supervision.

Caledonia Products Integrative Problem Essay Example for Free