Preview

Rinkydink

Powerful Essays
Open Document
Open Document
588 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Rinkydink
Caledonia
Team A
FIN/370
November 28, 2012
David Brockway

Caledonia
1. Why should Caledonia focus on project free cash flows as opposed to the accounting profits earned by the project when analyzing whether to undertake the project?
Caledonia Products should focus on free cash flow and not the accounting profits earned by the project. The cash flow received can be reinvested. The company can analyze the timing and benefits or cost by determining their cash flows. The incremental cash flows are the most important to the company because it increases the value of Caledonia

2. What are the incremental cash flows for the project in years 1 through 5 and how do these cash flows differ from accounting profits or earnings?
There are 3 incremental cash flows used for the project. They are net initial investment outlay, net operating cash flow, and net salvage value. These cash flows differ from the accounting projects or earnings because of the way the cash is used by the company. The Caledonia Investment will not treat its cash flows as an expense because the cost is spread over five years through depreciation.

3. What is the project’s initial outlay? | 1 | 2 | 3 | 4 | 5 | Units sold | 70000 | 120000 | 140000 | 80000 | 60000 | Sale price | $300.00 | $300.00 | $300.00 | $300.00 | $260.00 | | 180 | 180 | 180 | 180 | 180 | Rev from sale | $21,000,000.00 | $36,000,000.00 | $42,000,000.00 | $24,000,000.00 | $15,600,000.00 | Variable cost - | $12,600,000.00 | $21,600,000.00 | $25,200,000.00 | $14,400,000.00 | $10,800,000.00 | fixed cost- | $200,000.00 | $200,000.00 | $200,000.00 | $200,000.00 | $200,000.00 | EB | $8,200,000.00 | $14,200,000.00 | $16,600,000.00 | $9,400,000.00 | $4,600,000.00 | depr - | $1,600,000.00 | $1,600,000.00 | $1,600,000.00 | $1,600,000.00 | $1,600,000.00 | EBIT | $6,600,000.00 | $12,600,000.00 | $15,000,000.00 | $7,800,000.00 | $3,000,000.00 | 34% | $2,244,000.00 | $4,284,000.00 | $5,100,000.00 | $2,652,000.00 |

You May Also Find These Documents Helpful

  • Satisfactory Essays

    For project A, the projects net present value is $100,000 the initial investment overhead of the project is a negative expenditure because it is an expense to the company. Over the next five years the group expects to add the present annual value of $32,000, the return rate will be 11% utilizing the annuity table. The factor will be 3.696 at 11% for five years. To calculate the cash inflow, multiply the annual $32,000 by 3.696 at 11% to equal $118.272. Over a five year period the total cash inflow is $118,272 with a net value of $18,272 for project A. Net present value = $118,272 - $100,000 = $18,272…

    • 516 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    The focus of what Caledonia receives is the free cash flow. The company should focus on what is received and what can be reinvested. The cash flow allows Caledonia to analyze the actual benefits and the costs involved. If the company calculated the depreciation as an expense, and focused primarily on the accounting profit view the amounts would be substantially lower than what is reflected in the free cash flow.…

    • 614 Words
    • 3 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Hsm 260 Week 4 Case Study

    • 660 Words
    • 3 Pages

    Week 4 Exercise 15-1. Items to Classify | Standard | Actual | Type of Variance | Labor cost | $10.00 per hr | $9.60 per hour | favorable | Labor usage | 61,000 hrs | 61,800 hrs | unfavorable | Fixed cost spending | $400,000 | $390,000 | favorable | Fixed cost per unit | $3.20 per unit | $3.16 per unit | favorable | Sales volume | 40,000 units | 42,000 | unfavorable |…

    • 660 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    Caledonia Products

    • 1172 Words
    • 5 Pages

    Reviewing the information provided, Caledonia should focus on free cash flows rather than accounting profits, for the fact that these are the flows that the firm receives and can also reinvest. By looking at cash flows we are able to analyze the timing of the benefit or cost. The company should only be interested in the incremental cash flows, because the incremental cash flows will be marginal benefits from this project and increased value to the company. (Cite study paper)…

    • 1172 Words
    • 5 Pages
    Good Essays
  • Satisfactory Essays

    What are the incremental cash flows for the project in years1 through 5 and how do these cash flows differ from accounting profits or earnings? Ans: The incremental cash flows for the project for the years 1 through 5 are initial investment outlay compromising of cash expenditures, working capital, cash flow from sales and investments on tax credits. Also the operating cash flow from net revenue of expenses and tax liabilities along with salvage value; meaning the liquidation of sales of an investment from a business not sustainable.…

    • 341 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Week 4 Ltb

    • 1043 Words
    • 5 Pages

    2. What are the incremental cash flows for the project in years 1 through 5 and how do these cash flows differ from accounting profits or earnings?…

    • 1043 Words
    • 5 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Caledonia Products

    • 632 Words
    • 3 Pages

    Each year results in positive incremental cash flow and the new project appears to be a profitable business option. Accounting profits represent the total cost of doing business. The difference would be that this company requires additional net working capital every year which is not reflected in the incremental costs.…

    • 632 Words
    • 3 Pages
    Satisfactory Essays
  • Powerful Essays

    Calodenia

    • 422 Words
    • 2 Pages

    2. What are the incremental cash flows for the project in years1 through 5 and how do these cash flows differ from accounting profits or earnings?…

    • 422 Words
    • 2 Pages
    Powerful Essays
  • Powerful Essays

    4. Understand how to determine the relevant cash flows for various types of capital investments…

    • 1772 Words
    • 8 Pages
    Powerful Essays
  • Good Essays

    Nucor Financial Analysis

    • 748 Words
    • 3 Pages

    The next part of the cash flow analysis deals with Net Present Value (NPV). Nucor and any company that seeks to project if an investment is worthwhile to pursue must understand if the cash flows are in excess of the cost of capital. There are several different assumptions that are given to understand NPV for this project. The excel sheet “CF analysis-thin slab” shows in detail that cash flows are delayed due to plant construction and start-up costs. When the negative and positive cash flows are calculated by the discount rate of 15% there appears a NPV of -$51.32. This shows that the project…

    • 748 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Caledonia Paper Ratios

    • 832 Words
    • 4 Pages

    1. Why should Caledonia focus on project free cash flows as opposed to the accounting profits earned by the project when analyzing whether to undertake the project? - Essay Question…

    • 832 Words
    • 4 Pages
    Good Essays
  • Better Essays

    Victoria Chemicals

    • 788 Words
    • 4 Pages

    (3) NPV of free cash flow evaluates the dollar contribution of the project to shareholders.…

    • 788 Words
    • 4 Pages
    Better Essays
  • Good Essays

    Pm 592 Week 2

    • 1092 Words
    • 5 Pages

    9. General and Administrative expenses are estimated to be 5% of the total of (equipment / material) and (labor) based on past experience.…

    • 1092 Words
    • 5 Pages
    Good Essays
  • Powerful Essays

    If the Coat Fits Wear It

    • 1282 Words
    • 6 Pages

    Explain the relevance of incremental cash flows, sunk costs, and incidental costs in the context of this case.…

    • 1282 Words
    • 6 Pages
    Powerful Essays
  • Better Essays

    Case Study

    • 1915 Words
    • 8 Pages

    Define the term “incremental cash flow.” Since the project will be financed in part by debt, should the cash flow statement include interest expense? Explain.…

    • 1915 Words
    • 8 Pages
    Better Essays