Mini Case- Caledonia
glangsing (Not rated)
(Not rated)
following information describes the new project: Cost of new plant and equipment: $ 7,900,000 Shipping and installation costs: $ 100,000 Unit sales: Year Units Sold 1 70,000 2 120,000 3 140,000 4 80,000 5 60,000 Sales price per unit: $300/unit in years 1–4 and $260/unit in year 5. Variable cost per unit: $180/unit Annual fixed costs: $200,000 per year Working capital requirements: There will be an initial working capital requirement of $100,000 just to get production started.
| 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? ( 5 Points) | |||
| 3 | What is the project’s initial outlay? ( 15 points) | |||
| 4 | Sketch out a cash flow diagram for this project. ( 10 points) | |||
| 5 | What is the project’s net present value? ( 10 points) | |||
| 6 | What is its internal rate of return? (10 points) | |||
| 7 | Should the project be taken on? (Explain your answer) ( 5 points) | |||
13 years ago
Mini Case- Caledonia
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caledonia-formatted-4a.xls
